Pbx1 encodes a TALE homeodomain transcription factor that regulates developmental gene expression in a variety of tissues. Loss-of-function studies have demonstrated a critical role for Pbx1 in cellular proliferation and patterning and suggest its involvement in numerous regulatory pathways. In this study, examination of metanephric development in Pbx1^−/− embryos was conducted to further elucidate Pbx1-dependent processes during organogenesis. Prior to death at E15.5, Pbx1^−/− embryos displayed kidneys that were reduced in size, axially mispositioned, and in more severe cases, exhibited unilateral agenesis. Analysis with molecular markers revealed the effective induction of tubulogenic mesenchyme; however, Pbx1^−/− kidneys contained fewer nephrons and were characterized by expanded regions of mesenchymal condensates in the nephrogenic zone. Despite the restricted expression of Pbx1 in metanephric mesenchyme, developing nephrons, and stroma, decreased branching and elongation of the ureter were also observed. Moreover, heterologous recombination studies with explant cultures verified that Pbx1^−/− renal defects arose exclusively from mesenchymal dysfunction. Taken together, these data establish a role for Pbx1 in mesenchymal–epithelial signaling and demonstrate that Pbx1 is an essential regulator of mesenchymal function during renal morphogenesis.