In the embryo, the liver and pancreas exhibit a close developmental relationship. Both tissues arise from neighbouring regions of the developing endoderm. As well as this close developmental relationship, the liver and pancreas can, under certain circumstances, regenerate functional components. Understanding the normal development of the two tissue types and the underlying cellular and molecular mechanisms governing normal development and regeneration is critical to the production of novel therapies for treating liver disease and pancreatic disorders such as diabetes and pancreatitis. Herein we discuss the development of the liver and pancreas from progenitor cells in the embryo and the existence of potential stem cells in the adult tissues.