The pancreas is an essential organ for proper nutrient metabolism and has both endocrine and exocrine function. In the past two decades, knowledge of how the pancreas develops during embryogenesis has significantly increased, largely from developmental studies in model organisms. Specifically, the molecular basis of pancreatic lineage decisions and cell differentiation is well studied. Still not well understood are the mechanisms governing three-dimensional morphogenesis of the organ. Strategies to derive transplantable β-cells in vitro for diabetes treatment have benefited from the accumulated knowledge of pancreas development. In this review, we provide an overview of the current understanding of pancreatic lineage determination and organogenesis, and we examine future implications of these findings for treatment of diabetes mellitus through cell replacement.