During metanephric development, non-polarized mesenchymal cells are induced to form the epithelial structures of the nephron following interaction with extracellular matrix proteins and factors produced by the inducing tissue, ureteric bud. This induction can occur in a transfilter organ culture system where it can also be produced by heterologous cells such as the embryonic spinal cord. We found that when embryonic mesenchyme was induced in vitro and in vivo, many of the cells surrounding the new epithelium showed morphological evidence of programmed cell death (apoptosis) such as condensed nuclei, fragmented cytoplasm, and cell shrinking. A biochemical correlate of apoptosis is the transcriptional activation of a calcium-sensitive endonuclease. Indeed, DNA isolated from uninduced mesenchyme showed progressive degradation, a process that was prevented by treatment with actinomycin-D or cycloheximide and by buffering intracellular calcium. These results demonstrate that the metanephric mesenchyme is programmed for apoptosis. Incubation of mesenchyme with a heterologous inducer, embryonic spinal cord prevented this DNA degradation. To investigate the mechanism by which inducers prevented apoptosis we tested the effects of protein kinase C modulators on this process. Phorbol esters mimicked the effects of the inducer and staurosporine, an inhibitor of this protein kinase, prevented the effect of the inducer. EGF also prevented DNA degradation but did not lead to differentiation. These results demonstrate that conversion of mesenchyme to epithelial requires at least two steps, rescue of the mesenchyme from apoptosis and induction of differentiation.