Mechanisms underlying regional specification of distinct organ precursors within the endoderm, including the liver and pancreas, are still poorly understood. This is particularly true for stages between endoderm formation and the initiation of organogenesis. In this report, we have investigated these intermediate steps downstream of the early endodermal factor Gata5, which progressively lead to the induction of pancreatic fate. We have identified TGIF2 as a novel Gata5 target and demonstrate its function in the establishment of the pancreatic region within dorsal endoderm in Xenopus. TGIF2 acts primarily by restricting BMP signaling in the endoderm to allow pancreatic formation. Consistently, we found that blocking BMP signaling by independent means also perturbs the establishment of pancreatic identity in the endoderm. Previous findings demonstrated a crucial role for BMP signaling in determining dorsal/ventral fates in ectoderm and mesoderm. Our results now extend this trend to the endoderm and identify TGIF2 as the molecular link between dorsoventral patterning of the endoderm and pancreatic specification.