Islet replacement is a promising therapy for treating diabetes mellitus, but the supply of donor tissue for transplantation is limited. To overcome this limitation, endocrine tissue can be expanded, but this requires an understanding of normal developmental processes that regulate islet formation. In this study, we compare pancreas development in sheep and human, and provide evidence that an epithelial-mesenchymal transition (EMT) is involved in beta-cell differentiation and islet formation. Transcription factors know to regulate pancreas formation, pancreatic duodenal homeobox factor 1, neurogenin 3, NKX2-2, and NKX6-1, which were expressed in the appropriate spatial and temporal pattern to coordinate pancreatic bud outgrowth and direct endocrine cell specification in sheep. Immunofluorescence staining of the developing pancreas was used to co-localize insulin and epithelial proteins (cytokeratin, E-cadherin, and beta-catenin) or insulin and a mesenchymal protein (vimentin). In sheep, individual beta-cells become insulin-positive in the progenitor epithelium, then lose epithelial characteristics, and migrate out of the epithelial layer to form islets. As beta-cells exit the epithelial progenitor cell layer, they acquire mesenchymal characteristics, shown by their acquisition of vimentin. In situ hybridization expression analysis of the SNAIL family members of transcriptional repressors (SNAIL1, -2, and -3; listed as SNAI1, -2, -3 in the HUGO Database) showed that each of the SNAIL genes was expressed in the ductal epithelium during development, and SNAIL-1 and -2 were co-expressed with insulin. Our findings provide strong evidence that the movement of beta-cells from the pancreatic ductal epithelium involves an EMT.