The Hippo pathway directs cell differentiation during organogenesis, in part by restricting proliferation. How Hippo signaling maintains a proliferation-differentiation balance in developing tissues via distinct molecular targets is only beginning to be understood. Our study makes the unexpected finding that Hippo suppresses nuclear factor kappa-light-chain-enhancer of activated B cells (NFκB) signaling in pancreatic progenitors to permit cell differentiation and epithelial morphogenesis. We find that pancreas-specific deletion of the large tumor suppressor kinases 1 and 2 (Lats1/2PanKO) from mouse progenitor epithelia results in failure to differentiate key pancreatic lineages: acinar, ductal, and endocrine. We carried out an unbiased transcriptome analysis to query differentiation defects in Lats1/2PanKO. This analysis revealed increased expression of NFκB activators, including the pantetheinase vanin1 (Vnn1). Using in vivo and ex vivo studies, we show that VNN1 activates a detrimental cascade of processes in Lats1/2PanKO epithelium, including (1) NFκB activation and (2) aberrant initiation of epithelial-mesenchymal transition (EMT), which together disrupt normal differentiation. We show that exogenous stimulation of VNN1 or NFκB can trigger this cascade in wild-type (WT) pancreatic progenitors. These findings reveal an unexpected requirement for active suppression of NFκB by LATS1/2 during pancreas development, which restrains a cell-autonomous deleterious transcriptional program and thereby allows epithelial differentiation.