Mutations and deregulation of adenomatous polyposis coli (APC) and β-catenin are implicated in specific cancers of the pancreas, but the role of Wnt pathway in normal pancreas development and homeostasis is unknown [1–4]. This article reports a comprehensive investigation of the activity and the role of the Wnt pathway in pancreas organogenesis. We have used two reporter lines to monitor canonical Wnt pathway activity during development and after birth and demonstrate activity in endocrine cells and in the mesenchyme. We have specifically deleted the β-catenin gene in the epithelium of the pancreas and duodenum by using Pdx1-Cre mice. In agreement with Wnt pathway activity in pancreatic endocrine cells, we find a reduction in endocrine islet numbers. Our study reveals that β-catenin deletion also affects cells in which Wnt pathway activity is not detected. Indeed, β-catenin mutant cells have a competitive disadvantage during development that also affects the exocrine compartment. Moreover, the conditional knockout (KO) mice develop acute edematous pancreatitis perinatally due to the disruption of the epithelial structure of acini. These effects are likely to be due to the function of β-catenin at the membrane. Mice later recover from pancreatitis and regenerate normal pancreas and duodenal villi from the wild-type (wt) cells that escape β-catenin deletion.