The pancreatic beta cell is the major source of circulating insulin in adult mammals. In the multistep process of insulin synthesis it is initiation of transcription that restricts insulin synthesis to the beta cell since all subsequent steps can be performed by other cell types. Many of the transcription factors that bind to the insulin promoter and activate insulin gene transcription have been isolated. Some of these factors are restricted in their expression pattern, but so far no truly beta cell-specific transcriptional activator has been found. Since different transcription factors synergize to activate insulin gene transcription, cell-specific transcription of insulin is probably realized through the interactions of a unique set of regulatory proteins in the beta cell. The same transcription factors that regulate insulin gene transcription in the adult beta cell are involved in determining cell differentiation during pancreatic development. The endocrine and exocrine pancreas form from the gut endoderm as a dorsal and a ventral bud which later fuse to build a single organ. The homeodomain protein PDX-1, an insulin gene transcription factor, is uniformly expressed in the early pancreatic bud, and null mutation of PDX-1 in mice results in a failure of the pancreatic bud to grow and differentiate. Other transcription factors, such as the helix-loop-helix protein Beta-2 and the homeodomain protein Nkx 6.1, show a restricted pattern of expression during embryogenesis and in the mature islet. Those proteins may serve a dual role for the organism: during embryogenesis they may determine islet cell differentiation and in the adult they may ensure tissue-specific expression of the islet cell hormones. A better understanding of the factors involved in insulin gene transcription and islet cell differentiation will ultimately provide the basis for novel therapy of diabetes.