Pancreatic islet cells and neurons share common functions and similar ontogenies, but originate in different germ layers. To determine whether ectoderm-derived cells contribute instructive signals to the developing endoderm-derived pancreas, we defined the chronology of migration and differentiation of neural crest cells in the pancreas, and tested their role in the development of the islets. The homeodomain transcription factor Phox2b marks the neural precursors from the neural crest that colonize the gut to form the enteric nervous system. In the embryonic mouse pancreas, we found Phox2b expressed briefly together with Sox10 along the epithelial-mesenchymal border at E12.5 in cells derived from the neural crest. Downregulation of Phox2b shortly thereafter was dependent upon Nkx2.2 expressed in the adjacent pancreatic epithelium. In Phox2b(-/-) embryos, neurons and glia did not develop in the pancreas, and Nkx2.2 expression was markedly upregulated in the epithelium. In addition, the number and replication rate of insulin-expressing beta-cells increased in the Phox2b(-/-) mice. We conclude that, during pancreatic development, Phox2b and Nkx2.2 form a non-cell-autonomous feedback loop that links the neural crest with the pancreatic epithelium, regulates the size of the beta-cell population, and thereby impacts insulin-secretory capacity and energy homeostasis.