Present models suggest that the fate of the kidney epithelial progenitors is solely regulated by signals from the adjacent ureteric bud. The bud provides signals that regulate the survival, renewal and differentiation of these cells. Recent data suggest that Wnt9b, a ureteric-bud-derived factor, is sufficient for both progenitor cell renewal and differentiation. How the same molecule induces two seemingly contradictory processes is unknown. Here, we show that signals from the stromal fibroblasts cooperate with Wnt9b to promote differentiation of the progenitors. The atypical cadherin Fat4 encodes at least part of this stromal signal. Our data support a model whereby proper kidney size and function is regulated by balancing opposing signals from the ureteric bud and stroma to promote renewal and differentiation of the nephron progenitors.