We have discovered that angioblasts trigger an early inductive event in pancreatic differentiation. This event occurs soon after gastrulation, before the formation of blood vessels. Morphological studies revealed that Lmo2-expressing angioblasts reside in proximity to the somitic mesoderm and the gut endoderm from which pancreatic progenitors arise. The chemokine ligand CXCL12 expressed in the gut endoderm functions to attract the angioblasts that express its receptor CXCR4. Angioblasts then signal back to the gut endoderm to induce Pdx1 expression. Gain-of-function and loss-of-function experiments for CXCL12 and CXCR4 were performed to test their function in blood vessel formation and pancreatic differentiation. The ectopic expression of Cxcl12 in the endoderm attracted the angioblasts and induced ectopic Pdx1 expression, resulting in an expanded pancreatic bud and an increased area of insulin-expressing cells. By contrast, in chick embryos treated with beads soaked in AMD3100, an inhibitor of CXCR4, the migration of angioblasts towards the Cxcl12-expressing gut endoderm was arrested, causing a malformation of blood vessels. This led to the generation of a smaller pancreatic bud and a reduced area of insulin-expressing cells. Taken together, these results indicate that the gut endoderm and angioblasts attract each other through reciprocal CXCL12 and CXCR4 signaling. This has a pivotal role in the fate establishment of the pancreatic progenitor cells and in the potentiation of further differentiation into endocrine β-cells.