In developing organs, the regulation of cell proliferation and cell cycle exit is coordinated. How this coordination is achieved, however, is not clear. We show that the cyclin kinase inhibitor p57 regulates cell cycle exit of progenitors during the early stages of pancreas formation. In the absence of p57, the number of cycling progenitors increases, although expansion of progenitor population is prevented by apoptosis. We report that p57 is a direct target of transcriptional repression by Notch effector, Hes1. Inactivation of Hes1 results in the upregulation of p57 expression in progenitors, leading to cell cycle arrest, precocious differentiation and depletion of the progenitor pool. We present evidence that in p57/Hes1 double null embryos, the absence of apoptosis results in the expansion of the progenitor population. We propose that Hes1 and p57 not only coordinate cell cycle exit and self-renewal of pancreatic progenitors during an early stage in organogenesis to regulate the number of pancreatic progenitors, but could also constitute a surveillance system to eliminate cells with aberrant cell cycle characteristics.