The pancreas contains both exocrine and endocrine cells, but the molecular mechanisms controlling the differentiation of these cell types are largely unknown. Despite their endodermal origin, pancreatic endocrine cells share several molecular characteristics with neurons, and, like neurons in the central nervous system, differentiating endocrine cells in the pancreas appear in a scattered fashion within a field of progenitor cells. This indicates that they may be generated by lateral specification through Notch signalling. Here, to test this idea, we analysed pancreas development in mice genetically altered at several steps in the Notch signalling pathway. Mice deficient for Delta-like gene 1 (Dll1) or the intracellular mediator RBP-Jkappa showed accelerated differentiation of pancreatic endocrine cells. A similar phenotype was observed in mice over-expressing neurogenin 3 (ngn 3) or the intracellular form of Notch3 (a repressor of Notch signalling). These data provide evidence that ngn3 acts as proendocrine gene and that Notch signalling is critical for the decision between the endocrine and progenitor/exocrine fates in the developing pancreas.