Discs-large homolog 1 (DLGH1) is a mouse ortholog of the Drosophila discs-large (DLG) tumor suppressor protein, a founding member of the PDZ and MAGUK protein families. DLG proteins play important roles in regulating cell proliferation, epithelial cell polarity, and synapse formation and function. Here, we generated a null allele of Dlgh1 and studied its role in urogenital development. Dlgh1^−/− mice developed severe urinary tract abnormalities, including congenital hydronephrosis, which is the leading cause of renal failure in infants and children. DLGH1 is expressed in the developing ureter; in its absence, the stromal cells that normally lie between the urothelial and smooth muscle layers were missing. Moreover, in ureteric smooth muscle, the circular smooth muscle cells were misaligned in a longitudinal orientation. These abnormalities in the ureter led to severely impaired ureteric peristalsis. Similar smooth muscle defects are observed frequently in patients with ureteropelvic junction obstruction, a common form of hydronephrosis. Our results suggest that (i) besides its well documented role in regulating epithelial polarity, Dlgh1 also regulates smooth muscle orientation, and (ii) human DLG1 mutations may contribute to hereditary forms of hydronephrosis.