The interaction of hepatocyte growth factor (HGF) with c-Met has been implicated in morphogenesis of the kidney, lung, mammary gland, liver, placenta, and limb bud. HGF is secreted as an inactive zymogen and must be cleaved by a serine protease to initiate Met signaling. We show here that a serine protease specific for HGF, HGF activator (HGFA), is expressed and activated by the ureteric bud of the developing kidney in vivo and in vitro. Inhibition of HGFA activity with serine protease inhibitors reduced ureteric bud branching and inhibited glomerulogenesis and nephrogenesis. Activated HGF rescued developing kidneys from the effects of inhibitors. HGFA was localized around the tips of the ureteric bud in developing kidneys, while HGF was expressed diffusely throughout the mesenchyme. These data show that expression of HGF is not sufficient for development, but that its activation is also required. The localization of HGFA to the ureteric bud and the mesenchyme immediately adjacent to it suggests that HGFA creates a gradient of HGF activity in the developing kidney. The creation and shape of gradients of activated HGF by the localized secretion of HGF activators could play an important role in pattern formation by HGF responsive tissues.