Manipulatable models of bladder development which interrogate specific pathways are badly needed. Such models will allow a systematic investigation of the multitude of pathologies which result from developmental defects of the urinary bladder. In the present communication, we describe a model in which mouse embryonic stem (ES) cells are directed to differentiate to form bladder tissue by specific interactions with fetal bladder mesenchyme. This model allows us to visualize the various stages in the differentiation of urothelium from ES cells, including the commitment to an endodermal cell lineage, with the temporal profile characterized by examining the induction of specific endodermal transcription factors (Foxa1 and Foxa2). In addition, final functional urothelial differentiation was characterized by examining uroplakin expression. It is well established that ES cells will spontaneously develop teratomas when grown within immunocompromised mouse hosts. We determined the specific mesenchymal to ES cell ratios necessary to dictate organ-specific differentiation while completely suppressing teratomatous growth. Embryonic mesenchyme is well established as an inductive tissue which dictates organ-specific programming of epithelial tissues. The present study demonstrates that embryonic bladder mesenchyme can also steer ES cells towards developing specific endodermal derived urothelium. These approaches allow us to capture specific stages of stem cell differentiation and to better define stem cell hierarchies.