Urinary tract morphogenesis requires the sub-division of the ureteric bud (UB) into the intra-renal collecting system and ureter, two tissues with unique structural and functional properties. In this report we investigate the cellular and molecular mechanisms that mediate their differentiation. Fate mapping experiments in the developing chick indicate that the UB is surrounded by two distinct mesenchymal populations: nephrogenic mesenchyme derived from the intermediate mesoderm and tailbud-derived mesoderm, which is selectively associated with the domain of the UB that differentiates into the ureter. Functional experiments utilizing murine metanephric kidney explants show that BMP4, a paracrine factor secreted by tailbud-derived mesenchyme, is required for ureter morphogenesis. Conversely, ectopic BMP4 signaling is sufficient to induce ureter morphogenesis in domains of the UB normally fated to differentiate into the intra-renal collecting system. Collectively, these results indicate that the border between the kidney and ureter forms where mesenchymal tissues originating in two different areas of the early embryo meet. These data raise the possibility that the susceptibility of this junction to congenital defects in humans, such as ureteral-pelvic obstructions, may be related to the complex morphogenetic movements that are required to integrate cells from these different lineages into a single functional structure.