The discovery of angiotensin-converting enzyme (ACE) 2 adds a new level of complexity to the understanding of the renin-angiotensin system. The high catalytic efficiency of ACE2 for the generation of angiotensin (ANG)-1-7 from ANG II suggests an important role of ACE2 in preventing ANG II accumulation, while at the same time enhancing ANG-1-7 formation. ACE and ACE2 may have counterbalancing functions and a regulatory role in fine-tuning the rate at which ANG peptides are formed and degraded. By counterregulating the actions of ACE on ANG II formation, ACE2 may play a role in maintaining a balanced status of the renin-angiotensin system. This review focuses on the function of ACE2 and its possible roles in kidney disease and hypertension. Studies using models of ACE2 ablation and the pharmacologic administration of an ACE2 inhibitor suggest that decreased ACE2 activity alone or in combination with increased ACE activity may play a role in both diseases.