During pancreatic development insulin(+) cells co-express the transcription factors MafB and Pax6, and transition from a MafA(-) to MafA(+) state. To examine the role of Pax6 and MafB in the development of beta-cells, we analyzed embryonic pancreata from Pax6- and MafB-deficient mice. Pax6 deficiency, as manifest in the Pax6(Sey-Neu) allele, reduced not only the number of cells expressing insulin or glucagon, but also the number of MafB, PDX-1 and MafA expressing cells. We show that MafB can directly activate expression of insulin and glucagon, and a MafB protein engineered to contain N248S mutation in the MafB (kr(ENU)) results in significantly reduced activation. Furthermore, pancreata from MafB deficient (kr(ENU)/kr(ENU)) mice exhibited reduced number of cells expressing insulin, glucagon, PDX-1 and MafA, with only a minor reduction in MafB expressing cells. MafB deficiency does not affect endocrine specification but does affect the lineage commitment of the endocrine cells and their maturation. Similar to Pax6 deficient mice, MafB deficient mice showed reductions both in insulin and glucagon expressing cells and in the ability of MafB and PDX-1 expressing cells to activate expression of these hormones. However, MafB deficient mice exhibited no effect on Pax6 expression. These results suggest that MafB may function as a downstream mediator of Pax6 in regulating the specification of insulin and glucagon expressing cells. Interestingly, the remaining insulin(+) cells in these knockouts preferentially express Hb9, suggesting the existence of an alternate pathway for the generation of insulin expressing cells, even in the absence of Pax6 and MafB function. Thus, Pax6 acts upstream of MafB, which in turn may trigger the expression of insulin and regulate the PDX-1 and MafA expression required for beta-cell maturation.