Pancreas organogenesis is regulated by the interaction of distinct signaling 
pathways that promote or restrict morphogenesis and cell differentiation. 
Previous work has shown that activin, a TGF(beta+) signaling molecule, permits 
pancreas development by repressing expression of Sonic hedgehog (Shh), a member 
of the hedgehog family of signaling molecules that antagonize pancreas 
development. Here we show that Indian hedgehog (Ihh), another hedgehog family 
member, and Patched 1 (Ptc1), a receptor and negative regulator of hedgehog 
activity, are expressed in pancreatic tissue. Targeted inactivation of Ihh in 
mice allows ectopic branching of ventral pancreatic tissue resulting in an 
annulus that encircles the duodenum, a phenotype frequently observed in humans 
suffering from a rare disorder known as annular pancreas. Shh(-)(/)(-) and 
Shh(-)(/)(-) Ihh(+/)(-) mutants have a threefold increase in pancreas mass, and 
a fourfold increase in pancreatic endocrine cell numbers. In contrast, mutations 
in Ptc1 reduce pancreas gene expression and impair glucose homeostasis. Thus, 
islet cell, pancreatic mass and pancreatic morphogenesis are regulated by 
hedgehog signaling molecules expressed within and adjacent to the embryonic 
pancreas. Defects in hedgehog signaling may lead to congenital pancreatic 
malformations and glucose intolerance.