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Embryonic stem (ES) cells can differentiate into any tissue, including pancreatic islet cell types. Protocols for the efficient generation of these cells in vitro could have therapeutic applications for type I diabetes. Here we describe a simple method for the differentiation of mouse ES cells into epithelial cells with a gene expression profile consistent with that expected of early pancreatic progenitors (PP). It is based on the addition of sodium butyrate, an agent known to induce chromatin rearrangements. Variations on the length of exposure to butyrate result in the generation of hepatocytes or PP-like cells. qRT-PCR indicates that butyrate induces mesendoderm/definitive endoderm, but not neuroectoderm differentiation. PPlike cells show a strong upregulation of Ipf1/Pdx1, p48, Isl-1 and Nkx6.1, but not Ngn3, NeuroD/ Beta2 or Pax4. PP-like cells also express the epithelial marker E-cadherin. Taken together, our observations suggest that butyrate stimulates early events of pancreatic specification, prior to the onset of endocrine differentiation. These findings are discussed in the context of the development of protocols for the in vitro differentiation of islets.