Although mesenchymal-epithelial interactions play a critical role in organ development and stem cells, little is known about digestive organ-specific stromal signals. Utilizing reporter mice that label pancreatic, stomach and intestinal stromal cells, we analyzed their gene expression and identified pancreatic stroma-specific downregulation of Hh signaling. To investigate how mesenchymal Hh signaling is tightly regulated, we conditionally deleted two Hh negative regulators, Sufu and Spop, in the pancreatic mesenchyme and demonstrated their critical roles in beta cell differentiation during pancreatic development. Since Hh activation increases the expression of gut mesenchymal Wnt ligands, leading to severe defects in beta cell development, in collaboration with Dr. Cristina Nostro’s group, we examined the role of Wnt signaling in hESC differentiation. Notably, Wnt inhibitors such as WIKI4 significantly increased the number of C-PEP+/NKX6.1+ beta-like cells, whereas its agonist, CHIR99021, impaired the expression of pancreatic progenitors and endocrine lineage markers. Our goal is to define the signaling and epigenetic mechanisms of pancreatic niche signals for beta cell maturation and function.