The mammalian pancreas contains two distinct cell populations: endocrine cells which secrete hormones into the bloodstream, and exocrine cells, which secrete enzymes into the digestive tract. The four endocrine cell types found in the adult pancreas-(alpha, beta, delta and PP-synthesize glucagon, insulin, somatostatin and pancreatic polypeptide, respectively. All of these endocrine cells arise from common multipotent precursors, which coexpress several hormones when they start to differentiate. Expression of some homeobox genes in the early developing pancreas has been reported. The Pax4 gene is expressed in the early pancreas, but is later restricted to beta cells. Inactivation of Pax4 by homologous recombination results in the absence of mature insulin- and somatostatin-producing cells (beta and delta, respectively) in the pancreas of Pax4 homozygous mutant mice, but glucagon-producing alpha cells are present in considerably higher numbers. We propose that the early expression of Pax4 in a subset of endocrine progenitors is essential for the differentiation of the beta and delta cell lineages. A default pathway would explain the elevated number of alpha cells in the absence of Pax4.