Diabetes is caused by an absolute (type 1) or relative (type 2) deficiency of insulin-producing beta cells. The mechanisms governing replication of terminally differentiated beta cells and neogenesis from progenitor cells are unclear. Mice lacking insulin receptor substrate-2 (Irs2) develop beta cell failure, suggesting that insulin signaling is required to maintain an adequate beta cell mass. We report that haploinsufficiency for the forkhead transcription factor Foxo1 reverses beta cell failure in Irs2(-/-) mice through partial restoration of beta cell proliferation and increased expression of the pancreatic transcription factor pancreas/duodenum homeobox gene-1 (Pdx1). Foxo1 and Pdx1 exhibit mutually exclusive patterns of nuclear localization in beta cells, and constitutive nuclear expression of a mutant Foxo1 is associated with lack of Pdx1 expression. We show that Foxo1 acts as a repressor of Foxa2-dependent (Hnf-3beta-dependent) expression from the Pdx1 promoter. We propose that insulin/IGFs regulate beta cell proliferation by relieving Foxo1 inhibition of Pdx1 expression in a subset of cells embedded within pancreatic ducts.