The generation of specific lineages of the definitive endoderm from embryonic stem (ES) cells is an important issue in developmental biology, as well as in regenerative medicine. This study demonstrates that ES cells are induced sequentially into regional-specific gut endoderm lineages, such as pancreatic, hepatic, and other cell lineages, when they are cultured directly on a monolayer of mesoderm-derived supporting cells. A detailed chronological analysis revealed that Activin, fibroblast growth factor, or bone morphogenetic protein signals are critical at various steps and that additional short-range signals are required for differentiation into Pdx1-expressing cells. Under selective culture conditions, definitive endoderm (47%) or Pdx1-positive pancreatic progenitors (30%) are yielded at a high efficiency. When transplanted under the kidney capsule, the Pdx1-positive cells further differentiated into all three pancreatic lineages, namely endocrine, exocrine, and duct cells.