This study is aimed at characterizing medullary interstitial progenitor cells and to examine their capacity to induce tubular epithelial cell migration and proliferation. We have isolated a progenitor cell side population from a primary medullary interstitial cell line. We show that the medullary progenitor cells (MPCs) express CD24, CD44, CXCR7, CXCR4, nestin, and PAX7. MPCs are CD34 negative, which indicates that they are not bone marrow-derived stem cells. MPCs survive more than 50 passages, and when grown in epithelial differentiation medium develop phenotypic characteristics of epithelial cells. Inner medulla collecting duct (IMCD3) cells treated with conditioned medium from MPCs show significantly accelerated cell proliferation and migration. Conditioned medium from PGE2-treated MPCs induce tubule formation in IMCD3 cells grown in 3D matrigel. Moreover, most of the medullary progenitor cells express the pericyte marker PDGFR-b. Our study shows that the medullary interstitium harbors a side population of progenitor cells that can differentiate to epithelial cells and can stimulate tubular epithelial cell migration and proliferation. The findings of this study suggest that medullary pericyte/progenitor cells may play a critical role in collecting duct cell injury repair.