To study the developmental origin of the pancreas we used DiI crystals to mark regions of the early chick endoderm: this allowed correlations to be established between specific endoderm sites and the positions of their descendants. Endodermal precursor cells for the stomach, pancreas and intestine were found to segregate immediately after completion of gastrulation. Transplantation experiments showed that region-specific endodermal fates are determined sequentially in the order stomach, intestine, and then pancreas. Non-pancreatic endoderm transplanted to the stomach region generated ectopic pancreas expressing both insulin and glucagon. These results imply that a pancreas-inducing signal is emitted from somitic mesoderm underlying the pre-pancreatic region, and this extends rostrally beyond the stomach endoderm region at the early somite stage. Transplantation experiments revealed that the endoderm responding to these pancreatic-inducing signals lies within the pre-pancreatic region and extends caudally beyond the region of the intestinal endoderm. The results indicate that pancreatic fate is determined in the area of overlap between these two regions.