During kidney development, Pax2 and Pax8 are expressed very early in the mammalian nephric duct and both precede the expression of receptor tyrosine kinase, c-Ret. However, in Pax2'/' mutant mice, expression of c-Ret is lost after embryonic day 10.5. As the Ret/Gdnf pathway is necessary for renal development and there is a temporal and spatial relationship of Pax2 and c-Ret expression in the developing genito-urinary system, we postulate that Pax2 is necessary for c-Ret expression in the developing kidney. In vitro, Pax2 protein is capable of physically interacting with a c-RET promoter, and both Pax2 and Pax8 can activate the expression of a reporter gene driven by the c-RET promoter. Compound heterozygous null mice (Pax2+/': Ret+/') display an increased incidence of unilateral and bilateral renal agenesis, and smaller kidneys with fewer nephrons. Furthermore, the expression of Gdnf is reduced 2'3-fold, whereas c-Ret expression is reduced 9'47-fold in Pax2 heterozygous embryonic kidneys as detected by real-time quantitative RT (QRT)'PCR. The data demonstrate that Pax2 plays an integral role in the initiation and maintenance of the Ret/Gdnf pathway by not only activating the ligand of the pathway, but by also enhancing the expression of the pathway receptor Ret. The effects of reduced Pax2 gene dosage are thus amplified resulting in a haploinsufficient phenotype.