Unraveling molecular and functional heterogeneity of niche cells within the developing endoderm could resolve mechanisms of tissue formation and maturation. Here, we discuss current unknowns in molecular mechanisms underlying key developmental events in pancreatic islet and intestinal epithelial formation. Recent breakthroughs in single-cell and spatial transcriptomics, paralleled with functional studies in vitro, reveal that specialized mesenchymal subtypes drive the formation and maturation of pancreatic endocrine cells and islets via local interactions with epithelium, neurons, and microvessels. Analogous to this, distinct intestinal niche cells regulate both epithelial development and homeostasis throughout life. We propose how this knowledge can be used to progress research in the human context using pluripotent stem cell-derived multilineage organoids. Overall, understanding the interactions between the multitude of microenvironmental cells and how they drive tissue development and function could help us make more therapeutically relevant in vitro models.