The Wilms' tumor gene WT1 encodes a zinc-finger transcription factor that functions as a tumor suppressor gene and repress transcription of a number of growth factors and proto-oncogenes. In the developing kidney, WT1 expression peaks at the onset of the mesenchyme-to-epithelium transition and is required for epithelial differentiation. WT1 mRNA undergoes alternative splicing at two sites, resulting in four mRNA species and proteins expressed in constant ratios. The first alternative splice results in the presence or absence of exon 5, which is 51 nucleotides long and encodes 17 amino acids between the amino-terminal, proline-rich transcriptional repression domain and the carboxy-terminal DNA-binding zinc-fingers. We used cell-proliferation assays to determine the effect of exon 5 on WT1 function. Isoforms of WT1 without exon S repressed cell growth. WT1 isoforms with exon 5 slowed cell growth to a lesser extent but resulted in altered cellular morphology. These results provide evidence that WT1 splice isoforms differentially regulate cell proliferation and initiate the mesenchyme-to-epithelium transition during metanephric development.