Congenital obstructive nephropathy is the principal cause of renal failure in infants and children. The underlying molecular and cellular mechanisms of this disease, however, remain largely undetermined. We generated a mouse model of congenital obstructive nephropathy that resembles ureteropelvic junction obstruction in humans. In these mice, calcineurin function is removed by the selective deletion of Cnb1 in the mesenchyme of the developing urinary tract using the Cre/lox system. This deletion results in reduced proliferation in the smooth muscle cells and other mesenchymal cells in the developing urinary tract. Compromised cell proliferation causes abnormal development of the renal pelvis and ureter, leading to defective pyeloureteral peristalsis, progressive renal obstruction, and, eventually, fatal renal failure. Our study demonstrates that calcineurin is an essential signaling molecule in urinary tract development and is required for normal proliferation of the urinary tract mesenchymal cells in a cell-autonomous manner. These studies also emphasize the importance of functional obstruction, resulting from developmental abnormality, in causing congenital obstructive nephropathy.