Activin A is a potent growth and differentiation factor involved in development, differentiation and physiological functions of the endocrine pancreas; it increases insulin and pax4 gene expression in cells and can induce transdifferentiation of the exocrine acinar cell line AR42J into insulin-producing cells. We show here that Activin A decreases glucagon gene expression in the cell lines InR1G9 and TC1 in a dose- and time-dependent manner and that the effect is blocked by Follistatin. This effect is also observed in adult human islets. Glucagon gene expression is inhibited at the transcriptional level by the Smad signaling pathway through the G3 DNA control element. Furthermore, Activin A decreases cell proliferation of InR1G9 and TC1 cells as well as cyclin D2 and arx gene expression, whose protein product Arx has been shown to be critical for cell differentiation. Overexpression of Arx in Activin A-treated InR1G9 cells does not prevent the decrease in glucagon gene expression but correct the inhibition of cell proliferation, indicating that Arx mediates the Activin A effects on the cell cycle. We conclude that Activin A has opposite effects on cells compared with cells, a finding which may have relevance during pancreatic endocrine lineage specification and physiological function of the adult islets.