The importance of mesenchymal-epithelial interactions for normal development of the pancreas was recognized in the early 1960s, and mesenchymal signals have been shown to control the proliferation of early pancreatic progenitor cells. The mechanisms by which the mesenchyme coordinates cell proliferation and differentiation to produce the normal number of differentiated pancreatic cells are not fully understood. Here, we demonstrate that the mesenchyme positively controls the final number of beta-cells that develop from early pancreatic progenitor cells. In vitro, the number of beta-cells that developed from rat embryonic pancreatic epithelia was larger in cultures with mesenchyme than without mesenchyme. The effect of mesenchyme was not due to an increase in beta-cell proliferation but was due to increased proliferation of early pancreatic duodenal homeobox-1 (PDX1)-positive progenitor cells, as confirmed by bromodeoxyuridine incorporation. Consequently, the window during which early PDX1(+) pancreatic progenitor cells differentiated into endocrine progenitor cells expressing Ngn3 was extended. Fibroblast growth factor 10 mimicked mesenchyme effects on proliferation of early PDX1(+) progenitor cells and induction of Ngn3 expression. Taken together, our results indicate that expansion of early PDX1(+) pancreatic progenitor cells represents a way to increase the final number of beta-cells developing from early embryonic pancreas.