GATA4 and GATA6 are zinc finger transcription factors that have important functions in several mesodermal and endodermal organs, including heart, liver and pancreas. In humans, heterozygous mutations of either factor are associated with pancreatic agenesis; however, homozygous deletion of both Gata4 and Gata6 is necessary to disrupt pancreas development in mice. In this study, we demonstrate that arrested pancreatic development in Gata4 fl/fl ; Gata6 fl/fl ; Pdx1:Cre ( pDKO) embryos is accompanied by the transition of ventral and dorsal pancreatic fates into intestinal or stomach lineages, respectively. These results indicate that GATA4 and GATA6 play essential roles in maintaining pancreas identity by regulating foregut endodermal fates. Remarkably, pancreatic anlagen derived from pDKO embryos also display a dramatic upregulation of hedgehog pathway components, which are normally absent from the presumptive pancreatic endoderm. Consistent with the erroneous activation of hedgehog signaling, we demonstrate that GATA4 and GATA6 are able to repress transcription through the sonic hedgehog (Shh) endoderm-specific enhancer MACS1 and that GATA-binding sites within this enhancer are necessary for this repressive activity. These studies establish the importance of GATA4/6-mediated inhibition of hedgehog signaling as a major mechanism regulating pancreatic endoderm specification during patterning of the gut tube.