Renal dysplasia, a developmental disorder characterized by defective ureteric branching morphogenesis and nephrogenesis, ranks as one of the major causes of renal failure among the pediatric population. Herein, we demonstrate that the levels of activated β-catenin are elevated in the nuclei of ureteric, stromal, and mesenchymal cells within dysplastic human kidney tissue. By using a conditional mouse model of mesenchymal β-catenin overexpression, we identify two novel signaling pathways mediated by β-catenin in the development of renal dysplasia. First, the overexpression of β-catenin within the metanephric mesenchyme leads to ectopic and disorganized branching morphogenesis caused by β-catenin directly binding Tcf/lef consensus binding sites in the Gdnf promoter and up-regulating Gdnf transcription. Second, β-catenin overexpression in the metanephric mesenchyme leads to elevated levels of transcriptionally active β-catenin in the ureteric epithelium. Interestingly, this increase of β-catenin–mediated transcription results from a novel Ret/β-catenin signaling pathway. Consistent with these findings, analysis of human dysplastic renal tissue demonstrates that undifferentiated mesenchymal cells expressing high levels of β-catenin also express increased GDNF. Furthermore, dysplastic ureteric tubules that were surrounded by high levels of GDNF also exhibited increased levels of activated β-catenin. Together, these data support a model in which the elevation of β-catenin in the metanephric mesenchyme results in cell-autonomous and non–cell-autonomous events that lead to the genesis of renal dysplasia.