The kidney forms from two tissue populations derived from intermediate mesoderm, the ureteric bud and metanephric mesenchyme. It is currently accepted that metanephric mesenchyme is committed to differentiating into nephrons while the ureteric bud is restricted to forming the renal collecting system. To test this hypothesis, we transferred lacZ into pure metanephric mesenchyme isolated from gestation day 13 rat embryos. The fate of tagged mesenchymal cells and their progeny was characterized after co-culture with isolated ureteric buds. When induced to differentiate by the native inducer of kidney morphogenesis, lineage-tagged mesenchymal cells exhibit the potential to differentiate into collecting system epithelia, in addition to nephrons. The fate of cells deriving from isolated ureteric buds was also examined and results of these lacZ gene transfer experiments indicate that the majority of ureteric bud cells differentiate into the renal collecting system. These cell fate studies combined with in situ morphological observations raise the possibility that collecting system morphogenesis in vivo occurs by growth of the ureteric bud and recruitment of mesenchymal cells from the metanephric blastema. Thus, metanephric mesenchyme may be a pluripotent renal stem population.