Antagonists act to restrict and negatively modulate the activity of secreted signals during progression of embryogenesis. In mouse embryos lacking the extra-cellular BMP antagonist gremlin 1 (Grem1), metanephric development is disrupted at the stage of initiating ureteric bud outgrowth. Treatment of mutant kidney rudiments in culture with recombinant gremlin 1 protein induces additional epithelial buds and restores outgrowth and branching. All epithelial buds express Wnt11, and Gdnf is significantly upregulated in the surrounding mesenchyme, indicating that epithelial-mesenchymal (e-m) feedback signalling is restored. In the wild type, Bmp4 is expressed by the mesenchyme enveloping the Wolffian duct and ureteric bud and Grem1 is upregulated in the mesenchyme around the nascent ureteric bud prior to initiation of its outgrowth. In agreement, BMP activity is reduced locally as revealed by lower levels of nuclear pSMAD protein in the mesenchyme. By contrast, in Grem1-deficient kidney rudiments, pSMAD proteins are detected in many cell nuclei in the metanephric mesenchyme, indicative of excessive BMP signal transduction. Indeed, genetic lowering of BMP4 levels in Grem1-deficient mouse embryos completely restores ureteric bud outgrowth and branching morphogenesis. The reduction of BMP4 levels in Grem1 mutant embryos enables normal progression of renal development and restores adult kidney morphology and functions. This study establishes that initiation of metanephric kidney development requires the reduction of BMP4 activity by the antagonist gremlin 1 in the mesenchyme, which in turn enables ureteric bud outgrowth and establishment of autoregulatory GDNF/WNT11 feedback signalling.