Cell fate of lower Müllerian duct epithelium (MDE), to become uterine or vaginal epithelium, is determined by the absence or presence of ΔNp63 expression, respectively. Previously, we showed that SMAD4 and runt-related transcription factor 1 (RUNX1) were independently required for MDE to express ΔNp63. Here, we report that vaginal mesenchyme directs vaginal epithelial cell fate in MDE through paracrine activation of fibroblast growth factor (FGF) receptor-MAPK pathway. In the developing reproductive tract, FGF7 and FGF10 were enriched in vaginal mesenchyme, whereas FGF receptor 2IIIb was expressed in epithelia of both the uterus and vagina. When Fgfr2 was inactivated, vaginal MDE underwent uterine cell fate, and this differentiation defect was corrected by activation of MEK-ERK pathway. In vitro, FGF10 in combination with bone morphogenetic protein 4 and activin A (ActA) was sufficient to induce ΔNp63 in MDE, and ActA was essential for induction of RUNX1 through SMAD-independent pathways. Accordingly, inhibition of type 1 receptors for activin in neonatal mice induced uterine differentiation in vaginal epithelium by down-regulating RUNX1, whereas conditional deletion of Smad2 and Smad3 had no effect on vaginal epithelial differentiation. In conclusion, vaginal epithelial cell fate in MDE is induced by FGF7/10-MAPK, bone morphogenetic protein 4-SMAD, and ActA-RUNX1 pathway activities, and the disruption in any one of these pathways results in conversion from vaginal to uterine epithelial cell fate.