In humans, germline mutations of the WT-1 tumor suppressor gene are associated with both Wilms' tumors and urogenital malformations. To develop a model system for the molecular analysis of urogenital development, we introduced a mutation into the murine WT-1 tumor suppressor gene by gene targeting in embryonic stem cells. The mutation resulted in embryonic lethality in homozygotes, and examination of mutant embryos revealed a failure of kidney and gonad development. Specifically, at day 11 of gestation, the cells of the metanephric blastema underwent apoptosis, the ureteric bud failed to grow out from the Wolffian duct, and the inductive events that lead to formation of the metanephric kidney did not occur. In addition, the mutation caused abnormal development of the mesothelium, heart, and lungs. Our results establish a crucial role for WT-1 in early urogenital development.