Mutations in cystic kidney disease genes represent a major genetic cause of end-stage renal disease. However, the molecular cascades controlling the expression of these genes are still poorly understood. Hepatocyte Nuclear Factor 1β (HNF1β) is a homeoprotein predominantly expressed in renal, pancreatic and hepatic epithelia. We report here that mice with renal-specific inactivation of HNF1β develop polycystic kidney disease. We show that renal cyst formation is accompanied by a drastic defect in the transcriptional activation of Umod, Pkhd1 and Pkd2 genes, whose mutations are responsible for distinct cystic kidney syndromes. In vivo chromatin immunoprecipitation experiments demonstrated that HNF1β binds to several DNA elements in murine Umod, Pkhd1, Pkd2 and Tg737/Polaris genomic sequences. Our results uncover a direct transcriptional hierarchy between HNF1β and cystic disease genes. Interestingly, most of the identified HNF1β target gene products colocalize to the primary cilium, a crucial organelle that plays an important role in controlling the proliferation of tubular cells. This may explain the increased proliferation of cystic cells in MODY5 patients carrying autosomal dominant mutations in HNF1β.