Epithelial-mesenchymal interactions are required for the development of all solid organs but few molecular mechanisms that underlie these interactions have been identified. Pod1 is a basic-helix-loop-helix (bHLH) transcription factor that is highly expressed in the mesenchyme of developing organs that include the lung, kidney, gut and heart and in glomerular visceral epithelial cells (podocytes). To determine the function of Pod1 in vivo, we have generated a lacZ-expressing null Pod1 allele. Null mutant mice are born but die in the perinatal period with severely hypoplastic lungs and kidneys that lack alveoli and mature glomeruli. Although Pod1 is exclusively expressed in the mesenchyme and podocytes, major defects are observed in the adjacent epithelia and include abnormalities in epithelial differentiation and branching morphogenesis. Pod1 therefore appears to be essential for regulating properties of the mesenchyme that are critically important for lung and kidney morphogenesis. Defects specific to later specialized cell types where Pod1 is expressed, such as the podocytes, were also observed, suggesting that this transcription factor may play multiple roles in kidney morphogenesis.