Expansion of the pancreatic endocrine cell population occurs during both embryonic development and during post-natal pancreatic growth and regeneration. Mechanisms of the expansion of endocrine cells during embryonic development are not completely understood, and no clear mechanistic link has been established between growth of the embryonic endocrine pancreas and the islet cell replication that occurs in an adult animal. We found that transforming growth factor-beta (TGF-β) superfamily signaling, which has been implicated in many developmental processes, plays a key role in regulating pancreatic endocrine maturation and development. Specifically, the intracellular mediators of TGF-β signaling, smad2 and smad3, along with their inhibitor smad7, appear to mediate this process. Smad2, smad3 and smad7 were all broadly expressed throughout the early embryonic pancreatic epithelium. However, during later stages of development, smad2 and smad3 became strongly localized to the nuclei of the endocrine positive cells, whereas the inhibitory smad7 became absent in the endocrine component. Genetic inactivation of smad2 and smad3 led to a significant expansion of the embryonic endocrine compartment, whereas genetic inactivation of smad7 led to a significant decrease in the endocrine compartment. In vitro antisense studies further corroborated these results and supported the possibility that interplay between the inhibitory smad7 and the intracellular mediators smad2/3 is a control point for pancreatic endocrine development. These results should provide a better understanding of the key control mechanisms for β-cell development.