We isolated a mouse Sall1, a mammalian homologue of the Drosophila region-specific homeotic gene spalt (sal), and found that mice deficient in Sall1 die in the perinatal period from kidney agenesis. Sall1 is expressed in the metanephric mesenchyme surrounding the ureteric bud, and the homozygous deletion of Sall1 results in an incomplete ureteric bud outgrowth. Therefore Sall1 is essential for ureteric bud invasion, the initial key step for metanephros development. We also set up an in vitro culture system, using NIH3T3 cells stably expressing Wnt4 as a feeder layer, to identify kidney progenitors in the metanephric mesenchyme. In this culture condition, a single renal progenitor in the mesenchyme forms colonies consisting of several types of epithelial cells that exist in glomeruli and renal tubules. We found that only cells strongly expressing Sall1 (Sall1-GFP(high) cells) form colonies and that they reconstitute a three-dimensional kidney structure in an organ culture setting. Thus our colony-forming assay, which identifies multipotent progenitors in the embryonic mouse kidney, can be used for examining mechanisms of renal progenitor differentiation.