The pancreatic islet is necessary for maintaining glucose homeostasis. Within the pancreatic islet, the homeodomain protein Nkx2.2 is essential for the differentiation of all insulin-producing β cells and a subset of glucagon-producing α cells ( 1 ). Mice lacking Nkx2.2 have relatively normal sized islets, but a large number of cells within the mutant islet fail to produce any of the four major islet hormones. In this study we demonstrate that Nkx2.2 mutant endocrine cells have been replaced by cells that produce ghrelin, an appetite-promoting peptide predominantly found in the stomach. Intriguingly, normal mouse pancreas also contains a small population of ghrelin-producing cells, defining a new islet “ε” cell population. The expansion of ghrelin-producing cells at the expense of β cells may be a general phenomenon, because we demonstrate that Pax4 mutant mice display a similar phenotype. We propose that insulin and ghrelin cells share a common progenitor and that Nkx2.2 and Pax4 are required to specify or maintain differentiation of the β cell fate. This finding also suggests that there is a genetic component underlying the balance between insulin and ghrelin in regulating glucose metabolism.