Spatio-temporal regulation of the balance between cell renewal and cell differentiation is of vital importance for embryonic development and adult homeostasis. Fibroblast growth factor signaling relayed from the mesenchyme to the epithelium is necessary for progenitor maintenance during organogenesis of most endoderm-derived organs, but it is still ambiguous whether the signal is exclusively mitogenic. Furthermore, the downstream mechanisms are largely unknown. In order to elucidate these questions we performed a complementary analysis of fibroblast growth factor 10 (Fgf10), gain-of-function and loss-of-function in the embryonic mouse duodenum, where the progenitor niche is clearly defined and differentiation proceeds in a spatially organized manner. In agreement with a role in progenitor maintenance, FGF10 is expressed in the duodenal mesenchyme during early development while the cognate receptor FGFR2b is expressed in the epithelial progenitor niche. Fgf10 gain-of-function in the epithelium leads to spatial expansion of the progenitor niche and repression of cell differentiation, while loss-of-function results in premature cell differentiation and subsequent epithelial hypoplasia. We conclude that FGF10 mediated mesenchymal-to-epithelial signaling maintains the progenitor niche in the embryonic duodenum primarily by repressing cell differentiation, rather than through mitogenic signaling. Furthermore, we demonstrate that FGF10-signaling targets include ETS-family transcription factors, which have previously been shown to regulate epithelial maturation and tumor progression.