Heterozygous mutations in the gene that encodes the transcription factor hepatocyte nuclear factor 1β (HNF1B) result in a multi-system disorder. HNF1B was initially discovered as a monogenic diabetes gene; however, renal cysts are the most frequently detected feature. Other clinical features include pancreatic hypoplasia and exocrine insufficiency, genital tract malformations, abnormal liver function, cholestasis and early-onset gout. Heterozygous mutations and complete gene deletions in HNF1B each account for approximately 50% of all cases of HNF1B-associated disease and may show autosomal dominant inheritance or arise spontaneously. There is no clear genotype-phenotype correlation indicating that haploinsufficiency is the main disease mechanism. Data from animal models suggest that HNF1B is essential for several stages of pancreas and liver development. However, mice with heterozygous mutations in HNF1B show no phenotype in contrast to the phenotype seen in humans. This suggests that mouse models do not fully replicate the features of human disease and complementary studies in human systems are necessary to determine the molecular mechanisms underlying HNF1B-associated disease. This review discusses the role of HNF1B in human and murine pancreas and liver development, summarizes the disease phenotypes and identifies areas for future investigations in HNF1B-associated diabetes and liver disease.