Androgen receptor (AR) within prostatic mesenchymal cells, with the absence of AR in the epithelium, is still sufficient to induce prostate development. AR in the luminal epithelium is required to express the secretory markers associated with differentiation. Nkx3.1 is expressed in the epithelium in early prostatic embryonic development and expression is maintained in the adult. Induction of the mouse prostate gland by the embryonic mesenchymal cells results in the organization of a sparse basal layer below the luminal epithelium with rare neuroendocrine cells that are interdispersed within this basal layer. The human prostate shows similar glandular organization; however, the basal layer is continuous. The strong inductive nature of embryonic prostatic and bladder mesenchymal cells is demonstrated in grafts where embryonic stem (ES) cells are induced to differentiate and organize as a prostate and bladder, respectively. Further, the ES cells can be driven by the correct embryonic mesenchymal cells to form epithelium that differentiates into secretory prostate glands and differentiated bladders that produce uroplakin. This requires the ES cells to mature into endoderm that gives rise to differentiated epithelium. This process is control by transcription factors in both the inductive mesenchymal cells (AR) and the responding epithelium (FoxA1 and Nkx3.1) that allows for organ development and differentiation. In this review, we explore a molecular mechanism where the pattern of transcription factor expression controls cell determination, where the cell is assigned a developmental fate and subsequently cell differentiation, and where the assigned cell now emerges with it's own unique character.