Heparin-binding epidermal growth factor-like growth factor (HB-EGF), a member of the epidermal growth factor family of growth factors, is synthesized as a membrane-an-chored precursor (proHB-EGF) that is capable of stimulating adjacent cells in a juxtacrine manner. ProHB-EGF is cleaved in a protein kinase C-dependent process, to yield the soluble form. It was observed that HB-EGF acts as a morphogen for the collecting duct system in developing kidneys. HB-EGF protein was expressed in the ureteric bud of embryonic kidneys. Cultured mouse ureteric bud cells (UBC) produced HB-EGF via protein kinase C activation. After stimulation with phorbol ester (12-O-tetradecanoylphorbol-13-acetate) or recombinant soluble HB-EGF, UBC cultured in three-dimensional collagen gels formed short tubules with varied abundant branches. When proHB-EGF-transfected UBC were stimulated with 12-O-tetradecanoylphorbol-13-acetate and cultured in collagen gels, they exhibited linear growth, forming long tubular structures with few branches at the time of appearance of proHB-EGF on the cell surface. The structures exhibited a strong resemblance to the early branching ureteric bud of embryonic kidneys. When UBC were cultured in the presence of transforming growth factor-beta and soluble HB-EGF, they formed long tubules and few branches, similar to the structures observed in proHB-EGF-transfected UBC. These cells exhibited apical-basolateral polarization and expression of the water channel aquaporin-2. These findings indicate that soluble HB-EGF and proHB-EGF induce branching tubulogenesis in UBC in different ways. Juxtacrine activation by proHB-EGF or the synergic action of soluble HB-EGF with transforming growth factor-beta is important for well balanced morphogenesis of the collecting duct system.