Dorsal and ventral pancreatic bud development from the endoderm requires inductive interactions with diverse mesodermal cell types and the action of transcription factors expressed within the endoderm. Presently it is unclear which mesodermal interactions activate which pancreatic transcription factors,and whether such inductions are common for initiating dorsal and ventral pancreas development. Previous studies of Lammert et al. (Lammert, E.,Cleaver, O. and Melton, D. (2001) Science 294, 564-567) showed that signaling from embryonic blood vessel cells, derived from the mesoderm,promotes pancreatic bud development. Using a combination of mouse Flk1^-/- embryos lacking endothelial cells and tissue recombination experiments, we discovered that the initial induction of dorsal endoderm cells positive for the pancreatic and duodenal transcription factor Pdx1 does not require aorta or endothelial cell interactions, but dorsal pancreatic bud emergence and the maintenance of Pdx1 expression does. Aortal endothelial cells induce the crucial pancreatic transcription factor Ptf1a in the dorsal pancreatic endoderm; whereas the vitelline veins, which are normally adjacent to the emerging ventral pancreatic bud, are unnecessary for ventral Ptf1a induction or for ventral pancreatic bud initiation. We find that the aorta cells themselves, apart from the blood supply, cause the induction of Ptf1a in dorsal endoderm explants. Thus, endothelial cell interactions specifically promote early dorsal pancreatic development, at least in part, by inducing Ptf1a⁺ pancreatic progenitors. Additionally, we find that endothelial cells are necessary for the induction of both the insulin and glucagon genes.