The Hippo pathway plays a central role in tissue development and homeostasis. However, the function of Hippo in pancreatic endocrine development remains obscure. Here, we generated novel conditional genetically engineered mouse models to examine the roles of Hippo pathway-mediated YAP1/TAZ inhibition in the development stages of endocrine specification and differentiation. While YAP1 protein was localized to the nuclei in bipotent progenitor cells, Neurogenin 3 expressing endocrine progenitors completely lost YAP1 expression. Using genetically engineered mouse models, we found that inactivation of YAP1 requires both an intact Hippo pathway and Neurogenin 3 protein. Gene deletion of Lats1 and 2 kinases (Lats1&2) in endocrine progenitor cells of developing mouse pancreas using Neurog3Cre blocked endocrine progenitor cell differentiation and specification, resulting in reduced islets size and a disorganized pancreas at birth. Loss of Lats1&2 in Neurogenin 3 expressing cells activated YAP1/TAZ transcriptional activity and recruited macrophages to the developing pancreas. These defects were rescued by deletion of Yap1/Wwtr1 genes, suggesting that tight regulation of YAP1/TAZ by Hippo signaling is crucial for pancreatic endocrine specification. In contrast, deletion of Lats1&2 using β-cell-specific Ins1CreER resulted in a phenotypically normal pancreas, indicating that Lats1&2 are indispensable for differentiation of endocrine progenitors but not for that of β-cells. Our results demonstrate that loss of YAP1/TAZ expression in the pancreatic endocrine compartment is not a passive consequence of endocrine specification. Rather, Hippo pathway-mediated inhibition of YAP1/TAZ in endocrine progenitors is a prerequisite for endocrine specification and differentiation.