One key step in producing insulin-secreting cells from human embryonic stem (hES) cells is the generation of pancreatic and duodenal homeobox gene 1 (PDX1)-expressing pancreatic progenitor cells. All-trans retinoic acid (RA) has important roles in pancreas development and is widely used to induce pancreatic differentiation of ES cells. When RA was added directly to the activin A-induced hES cells, <20% cells were positive for the pancreatic marker PDX1, whereas the other cells were mainly hepatic cells. We found that when the activin A-induced hES cells were replated and seeded at low cell densities, the addition of RA induced significant pancreatic differentiation and over 70% of cells in culture expressed PDX1. When the endodermal cells were isolated with the surface marker CXCR4 from the activin A-induced culture and further differentiated with RA, a homogeneous PDX1(+) cell population (over 95% pure) was generated. The PDX1(+) cells could further differentiate into cells that expressed pancreatic transcription factors and pancreatic endocrine or exocrine markers. We also found that RA inhibited the hepatic differentiation of endodermal cells that were seeded at low cell densities, and this inhibition may have been through the inhibition of Smad1/5/8 activity. Thus, we present a highly efficient and reproducible protocol for generating PDX1(+) pancreatic progenitor cells from hES cells.