The murine Pax-2 gene contains a protein coding domain homologous to the Drosophila paired-box, first described in certain developmental control genes of the segmentation type. Polyclonal antibodies recognize two Pax-2 proteins that are encoded by differentially spliced mRNAs. The Pax-2 proteins can bind a DNA sequence known to interact with the paired domain of a Drosophila protein. By immunocytochemistry, expression of Pax-2 could be localized to the nuclei of condensing mesenchyme cells and their epithelial derivatives in the developing kidney. Expression is abruptly down-regulated as the tubular epithelium differentiates. High levels of Pax-2 expression could also be detected in the epithelial cells of human Wilms tumors. These data suggest that Pax-2 is a transcription factor active during the mesenchyme-to-epithelium transition in early kidney development and in Wilms tumor.