We have recently shown that kidney-derived stem cells (KSCs) isolated from the mouse newborn kidney differentiate into a range of kidney-specific cell types. However, the functionality and integration capacity of these mouse KSCs remain unknown. Therefore, the main objectives of this study were (1) to determine if proximal tubule-like cells, generated in vitro from KSCs, displayed absorptive function typical of proximal tubule cells in vivo, and (2) to establish whether the ability of KSCs to integrate into developing nephrons was comparable with that of metanephric mesenchyme (MM), a transient population of progenitor cells that gives rise to the nephrons during kidney organogenesis. We found that proximal tubule-like cells generated in vitro from mouse KSCs displayed megalin-dependent absorptive function. Subsequently, we used a chimeric kidney rudiment culture system to show that the KSCs could generate proximal tubule cells and podocytes that were appropriately located within the developing nephrons. Finally, we compared the ability of KSCs to integrate into developing kidneys ex vivo with that of metanephric mesenchyme cells. We found that KSCs integrated into nascent nephrons to a similar extent as metanephric mesenchyme cells while both were excluded from ureteric bud branches. Our analysis of the behavior of the two cell types shows that some, but not all KSC characteristics are similar to those of the MM.