The Wilms' tumor suppressor gene, wt1, encodes a zinc finger protein which functions as a transcriptional regulator. Expression of the wt1 gene is developmentally regulated and restricted to a small set of tissues which include the fetal urogenital system, mesothelium, and spleen. In the developing kidney, induction of neprohogenesis by the ureter is accompanied by an increase in expression levels of the Pax-2 gene, a developmentally and spatially regulated paired-box member. This is followed by an increase in wt1 expression as mesenchymal cells condense and differentiate. In this report, we demonstrate that PAX2 isoforms are capable of transactivating the wt1 promoter. Deletion mutagenesis of the wt1 promoter identified an element responsible for mediating PAX2 responsiveness, located between nucleotides -33 and -71 relative to the first wt1 transcription start site. Consistent with its identity as a PAX responsive element, multimerization of this mofit upstream of a heterologous minimal promoter enhanced reporter activity when co-transfected with a Pax-2 expression vector. Finally, we demonstrate that PAX2 can stimulate expression of the endogenous wt1 gene. These results suggest that a role for PAX2 during mesenchyme-to-epithelium transition in renal development is to induce wt1 expression.