FGF10 plays an important role in the morphogenesis of several tissues by control of mesenchymal-to-epithelial signaling. In the pancreas, mesenchymal FGF10 is required to maintain the Pdx1-expressing epithelial progenitor cell population, and in the absence of FGF10 signaling, these cells fail to proliferate. Ectopic expression of FGF10 in the pancreatic epithelium caused increased proliferation of pancreatic progenitor cells and abrogation of pancreatic cell differentiation of all cell types. A hyperplastic pancreas consisting of undifferentiated cells expressing Pdx1, Nkx6.1, and cell adhesion markers normally characterizing early pancreatic progenitor cells resulted. Differentiation was attenuated even as proliferation of the pancreatic cells slowed during late gestation, suggesting that the trophic effect of FGF10 was independent of its effects upon cell differentiation. The FGF10-positive pancreatic cells expressed Notch1 and Notch2, the Notch-ligand genes Jagged1 and Jagged2, as well as the Notch target gene Hes1. This activation of Notch is distinct from the previously recognized mechanism of lateral inhibition. These data suggest that FGF10 signaling serves to integrate cell growth and terminal differentiation at the level of Notch activation, revealing a novel second role of this key signaling system during pancreatic development.