Proper organogenesis depends upon defining the precise dimensions of organ progenitor territories. Kidney progenitors originate within the intermediate mesoderm (IM), but the pathways that set the boundaries of the IM are poorly understood. Here, we show that the bHLH transcription factor Hand2 limits the size of the embryonic kidney by restricting IM dimensions. The IM is expanded in zebrafish hand2 mutants and is diminished when hand2 is overexpressed. Within the posterior mesoderm, hand2 is expressed laterally adjacent to the IM. Venous progenitors arise between these two territories, and hand2 promotes venous development while inhibiting IM formation at this interface. Furthermore, hand2 and the co-expressed zinc-finger transcription factor osr1 have functionally antagonistic influences on kidney development. Together, our data suggest that hand2 functions in opposition to osr1 to balance the formation of kidney and vein progenitors by regulating cell fate decisions at the lateral boundary of the IM.