The systemic administration of keratinocyte growth factor (KGF) enhances T-cell lymphopoiesis in normal mice and mice that received a bone marrow transplant. KGF exerts protection to thymic stromal cells from cytoablative conditioning and graft-versus-host disease-induced injury. However, little is known regarding KGF's molecular and cellular mechanisms of action on thymic stromal cells. Here, we report that KGF induces in vivo a transient expansion of both mature and immature thymic epithelial cells (TECs) and promotes the differentiation of the latter type of cells. The increased TEC numbers return within 2 weeks to normal values and the microenvironment displays a normal architectural organization. Stromal changes initiate an expansion of immature thymocytes and permit regular T-cell development at an increased rate and for an extended period of time. KGF signaling in TECs activates both the p53 and NF-κB pathways and results in the transcription of several target genes necessary for TEC function and T-cell development, including bone morphogenetic protein 2 (BMP2), BMP4, Wnt5b, and Wnt10b. Signaling via the canonical BMP pathway is critical for the KGF effects. Taken together, these data provide new insights into the mechanism(s) of action of exogenous KGF on TEC function and thymopoiesis.