Human pluripotent stem cell-derived kidney organoids recapitulate developmental processes and tissue architecture, but intrinsic limitations, such as lack of vasculature and functionality, have greatly hampered their application. Here we establish a versatile protocol for generating vascularized three-dimensional (3D) kidney organoids. We employ dynamic modulation of WNT signaling to control the relative proportion of proximal versus distal nephron segments, producing a correlative level of vascular endothelial growth factor A (VEGFA) to define a resident vascular network. Single-cell RNA sequencing identifies a subset of nephron progenitor cells as a potential source of renal vasculature. These kidney organoids undergo further structural and functional maturation upon implantation. Using this kidney organoid platform, we establish an in vitro model of autosomal recessive polycystic kidney disease (ARPKD), the cystic phenotype of which can be effectively prevented by gene correction or drug treatment. Our studies provide new avenues for studying human kidney development, modeling disease pathogenesis, and performing patient-specific drug validation.