During embryonic development, many organs form by extensive branching of epithelia through the formation of clefts and buds. In cleft formation, buds are delineated by the conversion of epithelial cell-cell adhesions to cell-matrix adhesions, but the mechanisms of cleft formation are not clear. We have identified Btbd7 as a dynamic regulator of branching morphogenesis. Btbd7 provides a mechanistic link between the extracellular matrix and cleft propagation through its highly focal expression leading to local regulation of Snail2 (Slug), E-cadherin, and epithelial cell motility. Inhibition experiments show that Btbd7 is required for branching of embryonic mammalian salivary glands and lungs. Hence, Btbd7 is a regulatory gene that promotes epithelial tissue remodeling and formation of branched organs.