Liver and ventral pancreas develop from neighboring territories within the endoderm of gastrulae. ventral pancreatic precursor 1 (vpp1) is a marker gene that is differentially expressed in a cell population within the dorsal endoderm in a pattern partially overlapping with that of hematopoietically expressed homeobox (hhex) during gastrulation. In tail bud embryos, vpp1 expression specifically demarcates two ventral pancreatic buds, whereas hhex expression is mainly restricted to the liver diverticulum. Ectopic expression of a critical dose of hhex led to a greatly enlarged vpp1-positive domain and, subsequently, to the formation of giant ventral pancreata, putatively by conversion of intestinal to ventral pancreatic precursor cells. Conversely, antisense morpholino oligonucleotide-mediated knockdown of hhex resulted in a down-regulation of vpp1 expression and a specific loss of the ventral pancreas. Furthermore, titration of hhex with a dexamethasone-inducible hhex-VP16GR fusion construct suggested that endogenous hhex activity during gastrulation is essential for the formation of ventral pancreatic progenitor cells. These observations suggest that, beyond its role in liver development, hhex controls specification of a vpp1-positive endodermal cell population during gastrulation that is required for the formation of the ventral pancreas.