During fetal kidney development, the extent of ureteric bud (UB) branching will determine final nephron endowment for life. Nephron number varies widely among normal humans and those who are born at the low end of the nephron number spectrum may be at risk for essential hypertension in adulthood. Little is known about how nephron number is set. However, we have previously shown that the transcription factor, Pax2, suppresses apoptosis in ureteric bud cells during kidney development and optimizes branching morphogenesis. Here, we report that PAX2 directly binds to a specific recognition motif in the human NAIP (neuronal apoptosis inhibitory protein) gene promoter. NAIP is an endogenous inhibitor of apoptosis, inactivating caspase-3 and caspase-7 in neuronal tissues. PAX2 activates NAIP gene transcription (7-fold) in vitro and NAIP transcript level is increased 4-fold in HEK293 cells stably transfected with PAX2. We show that Naip is expressed in E15 fetal kidney tissue (RT-PCR) and NAIP protein is demonstrated by immunohistochemistry in E15 mouse kidney collecting ducts and P1 proximal tubules. Naip mRNA is significantly reduced (50%) in heterozygous Pax2 mutant mice. Finally we show that an antisense Naip1 cDNA transfected into murine collecting duct (mIMCD-3) cells doubles caspase-3/7 activity induced by Baxa. These observations suggest that the powerful effects of PAX2 on renal branching morphogenesis and final nephron number may be mediated by activation of Naip which then suppresses apoptosis in ureteric bud cells.