The pdx1 gene is essential for pancreatic organogenesis in humans and mice; pdx1 mutations have been identified in human diabetic patients. Specific inactivation of pdx1 in adult beta cells revealed that this gene is required for maintenance of mature beta cell function. In the following study, a Cre-lox strategy was used to remove pdx1 function specifically from embryonic beta cells beginning at late-gestation, prior to islet formation. Animals in which pdx1 is lost in insulin-producing cells during embryogenesis had elevated blood glucose levels at birth and were overtly diabetic by weaning. Neonatal and adult mutant islets showed a dramatic reduction in the number of insulin(+) cells and an increase in both glucagon(+) and somatostatin(+) cells. Lineage tracing revealed that excess glucagon(+) and somatostatin(+) cells did not arise by interconversion of endocrine cell types. Examination of mutant islets revealed a decrease in proliferation of insulin-producing cells just before birth and a concomitant increase in proliferation of glucagon-producing cells. We propose that pdx1 is required for proliferation and function of the beta cells generated at late gestation, and that one function of normal beta cells is to inhibit the proliferation of other islet cell types, resulting in the appropriate numbers of the different endocrine cell types.