The development of the mammalian pancreas is governed by various signaling processes and by a cascade of gene activation events controlled by different transcription factors. Here we show that the divergent homeodomain transcription factor Prox1 is a novel, crucial regulator of mouse pancreas organogenesis. Loss of Prox1 function severely disrupted epithelial pancreas morphology and hindered pancreatic growth without affecting significantly the genesis of endocrine cells before E11.5. Conversely, the lack of Prox1 activity substantially decreased the formation of islet cell precursors after E13.5, during a period known as the "secondary transition". Notably, this defect occurred concurrently with an abnormal increment of exocrine cells. Hence, it is possible that Prox1 contributes to the allocation of an adequate supply of islet cells throughout pancreas ontogeny by preventing exocrine cell differentiation of multipotent pancreatic progenitors. Prox1 thus appears to be an essential component of a genetic program destined to produce the cellular complexity of the mammalian pancreas.