G-protein-coupled receptor 54 (Gpr54, KISS1 receptor) plays critical roles in puberty regulation, tumor metastasis suppression, and vasoconstriction. Bone morphogenetic protein-7 (Bmp7) is required for kidney organogenesis. However, whether Gpr54 is involved in embryonic kidney development and how Bmp7 expression is regulated in the kidney are largely unknown. Here we report that Gpr54 deletion leads to kidney branching morphogenesis and glomerular development retardation in embryonic kidneys in vivo and in explanted kidneys in vitro. Gpr54 inactivation results in a high risk of low glomerular number in adult kidneys. Gpr54 is expressed in condensed mesenchyme at E12.5 and epithelial cells of proximal and distal tubules and collecting ducts at E17.5 and P0 mouse kidney. Deletion of Gpr54 decreases Bmp7 expression and Smad1 phosphorylation in the developing kidney. Using chromatin immunoprecipitation and luciferase assays, we demonstrate that Gpr54 regulates NFAT2- and Sp1-mediated Bmp7 transcription. Furthermore, we show that NFAT2 cooperates with Sp1 to promote Bmp7 transcription activation. Together, these data suggest that Gpr54 regulates Bmp7 expression through NFAT2 and Sp1 and plays an important role in embryonic kidney branching morphogenesis and glomerular development.