BMP-7/OP-1, a member of the transforming growth factor-beta (TGF-beta) family of secreted growth factors, is expressed during mouse embryogenesis in a pattern suggesting potential roles in a variety of inductive tissue interactions. The present study demonstrates that mice lacking BMP-7 display severe defects confined to the developing kidney and eye. Surprisingly, the early inductive tissue interactions responsible for establishing both organs appear largely unaffected. However, the absence of BMP-7 disrupts the subsequent cellular interactions required for their continued growth and development. Consequently, homozygous mutant animals exhibit renal dysplasia and anophthalmia at birth. Overall, these findings identify BMP-7 as an essential signaling molecule during mammalian kidney and eye development.