BACKGROUND: The pygopus gene of Drosophila encodes an essential component of the Armadillo (beta-catenin) transcription factor complex of canonical Wnt signaling. To better understand the functions of Pygopus-mediated canonical Wnt signaling in kidney development, targeted mutations were made in the two mammalian orthologs, Pygo1 and Pygo2. RESULTS: Each mutation deleted >80% of the coding sequence, including the critical PHD domain, and almost certainly resulted in null function. Pygo2 homozygous mutants, with rare exception, died shortly after birth, with a phenotype including lens agenesis, growth retardation, altered kidney development, and in some cases exencephaly and cleft palate. Pygo1 homozygous mutants, however, were viable and fertile, with no detectable developmental defects. Double Pygo1/Pygo2 homozygous mutants showed no apparent synergy in phenotype severity. The BAT-gal transgene reporter of canonical Wnt signaling showed reduced levels of expression in Pygo1-/-/Pygo2-/- mutants, with tissue-specific variation in degree of diminution. The Pygo1 and Pygo2 genes both showed widespread expression in the developing kidney, with raised levels in the stromal cell compartment. Confocal analysis of the double mutant kidneys showed disturbance of both the ureteric bud and metanephric mesenchyme-derived compartments. Branching morphogenesis of the ureteric bud was altered, with expanded tips and reduced tip density, probably contributing to the smaller size of the mutant kidney. In addition, there was an expansion of the zone of condensed mesenchyme capping the ureteric bud. Nephron formation, however, proceeded normally. Microarray analysis showed changed expression of several genes, including Cxcl13, Slc5a2, Klk5, Ren2 and Timeless, which represent candidate Wnt targets in kidney development. CONCLUSION: The mammalian Pygopus genes are required for normal branching morphogenesis of the ureteric bud during kidney development. Nevertheless, the relatively mild phenotype observed in the kidney, as well as other organ systems, indicates a striking evolutionary divergence of Pygopus function between mammals and Drosophila. In mammals, the Pygo1/Pygo2 genes are not absolutely required for canonical Wnt signaling in most developing systems, but rather function as quantitative transducers, or modulators, of Wnt signal intensity.