Pax2 is a paired box transcription factor expressed in a spatially and temporally restricted manner and its absence results in major developmental defects of the central nervous system, eyes, ears and urogenital system. We recently reported that Pax2 is expressed in pancreatic endocrine cell lines and adult islets of Langerhans and activates glucagon gene expression. We have shown here that the Pax2 gene is expressed during pancreas development as early as embryonic day 10.5. Its absence, as assessed in Pax2(1Neu) mutant mice, results in a two- to threefold increase in the average pancreas volume occupied by the islets in both heterozygous and homozygous mutant mice with a gene-dependent dosage effect. This increase, which is due to a change in the number of islets per unit pancreas volume and in the size of individual islets, is not accompanied by significant modification in the insulin or glucagon content of the pancreas, indicating that the content of these hormones per cell is decreased. We have concluded that Pax2 may be implicated in the prenatal determination of the relative proportion of the endocrine and exocrine tissues of the pancreas.