During pancreas development, epithelial buds undergo branching morphogenesis to form an exocrine and endocrine gland. Proper morphogenesis is necessary for correct lineage allocation of pancreatic progenitors; however, the cellular events underlying pancreas morphogenesis are unknown. Here, we employed time-lapse microscopy and fluorescent labeling of cells to analyze cell behaviors associated with pancreas morphogenesis. We observed that outer bud cells adjacent to the basement membrane are pleomorphic and rearrange frequently; additionally, they largely remain in the outer cell compartment even after mitosis. These cell behaviors and pancreas branching depend on cell contacts with the basement membrane, which induce actomyosin cytoskeleton remodeling via integrin-mediated activation of FAK/Src signaling. We show that integrin signaling reduces E-cadherin-mediated cell-cell adhesion in outer cells and provide genetic evidence that this regulation is necessary for initiation of branching. Our study suggests that regulation of cell motility and adhesion by local niche cues initiates pancreas branching morphogenesis.