Pancreas development requires restrained Hedgehog (Hh) signaling activation. While deregulated Hh signaling in the pancreatic mesenchyme has been long suggested to be detrimental for proper organogenesis, this association was not directly shown. Here, we analyzed the contribution of mesenchymal Hh signaling to pancreas development. To increase Hh signaling in the pancreatic mesenchyme of mouse embryos, we deleted Patched1 (Ptch1) in these cells. Our findings indicate that deregulated Hh signaling in mesenchymal cells was sufficient to impair pancreas development, affecting both endocrine and exocrine cells. Notably, transgenic embryos displayed disrupted islet cellular composition and morphology, with a reduced β-cell portion. Our results indicate that the cell-specific growth rates of α- and β-cell populations, found during normal development, require regulated mesenchymal Hh signaling. In addition, we detected hyperplasia of mesenchymal cells upon elevated Hh signaling, accompanied by them acquiring smooth-muscle like phenotype. By specifically manipulating mesenchymal cells, our findings provide direct evidence for the non-autonomous roles of the Hh pathway in pancreatic epithelium development. To conclude, we directly show that regulated mesenchymal Hh signaling is required for pancreas organogenesis and establishment of its proper cellular composition.