Mutation of HNF1B, the gene encoding transcription factor HNF-1β, is one cause of autosomal dominant tubulointerstitial kidney disease, a syndrome characterized by tubular cysts, renal fibrosis, and progressive decline in renal function. HNF-1β has also been implicated in epithelial-mesenchymal transition (EMT) pathways, and sustained EMT is associated with tissue fibrosis. The mechanism whereby mutated HNF1B leads to tubulointerstitial fibrosis is not known. To explore the mechanism of fibrosis, we created HNF-1β-deficient mIMCD3 renal epithelial cells, used RNA-sequencing analysis to reveal differentially expressed genes in wild-type and HNF-1β-deficient mIMCD3 cells, and performed cell lineage analysis in HNF-1β mutant mice. The HNF-1β-deficient cells exhibited properties characteristic of mesenchymal cells such as fibroblasts, including spindle-shaped morphology, loss of contact inhibition, and increased cell migration. These cells also showed upregulation of fibrosis and EMT pathways, including upregulation of Twist2, Snail1, Snail2, and Zeb2, which are key EMT transcription factors. Mechanistically, HNF-1β directly represses Twist2, and ablation of Twist2 partially rescued the fibroblastic phenotype of HNF-1β mutant cells. Kidneys from HNF-1β mutant mice showed increased expression of Twist2 and its downstream target Snai2. Cell lineage analysis indicated that HNF-1β mutant epithelial cells do not transdifferentiate into kidney myofibroblasts. Rather, HNF-1β mutant epithelial cells secrete high levels of TGF-β ligands that activate downstream Smad transcription factors in renal interstitial cells. Ablation of HNF-1β in renal epithelial cells leads to the activation of a Twist2-dependent transcriptional network that induces EMT and aberrant TGF-β signaling, resulting in renal fibrosis through a cell-nonautonomous mechanism.