Inhibitor of DNA binding (Id) proteins bind to and inhibit the function of basic helix-loop-helix (bHLH) transcription factors including those that regulate pancreatic development. Moreover, bone morphogenetic proteins (BMPs) regulate the expression of Ids. We hypothesized that BMP4 and Id proteins play a role in the expansion and differentiation of epithelial progenitor cells. We demonstrate that BMP4 induces the expression of Id2 along with the expansion of AR42J pancreatic epithelial cells. Furthermore, neutralization of BMP4 significantly reduced duct epithelial cell expansion in a mouse model of islet regeneration. BMP4 stimulation promotes Id2 binding to the bHLH transcription factor NeuroD, which is required for the differentiation of pancreatic islet cells. Therefore, our results indicate that BMP4 stimulation blocks the differentiation of endocrine progenitor cells and instead promotes their expansion thereby revealing a novel paradigm of signaling explaining the balance between expansion and differentiation of pancreatic duct epithelial progenitors. Understanding the mechanisms of BMP and Id function elucidates a key step during pancreas embryogenesis, which is important knowledge for expanding pancreatic progenitors in vitro.