Pancreatic beta cells play a central role in maintaining glucose homeostasis because they secrete insulin in response to increased level of blood glucose; failure of this capacity constitutes a major component of the pathogenesis of diabetes. The identification of key regulators of pancreatic beta-cell differentiation is relevant for the overall understanding of this process and for future experiments aimed at regenerating insulin-producing beta cells from pancreatic or embryonic stem cells. Several studies using transgenic or knockout mice have established that the development and function of pancreatic beta cells are controlled by several genes encoding specific transcription factors. By inactivating the homeobox gene Pax4, we previously demonstrated that its function is required for the formation of mature insulin-producing cells. Here, we show that during pancreas ontogeny, Pax4 is expressed in differentiating endocrine cells, including beta cells. Pax4 activity appears essential for appropriate initiation of beta-cell differentiation because loss of Pax4 prevents the expression of Pdx1, HB9 and insulin in beta-cell precursors. This role of Pax4 appears to be accomplished via its genetic interaction with another homeobox gene, Nkx2.2.