Embryonic stem (ES) cells differentiating in vitro reproduce many facets of early embryonic development, including the expression of developmentally regulated transcription factors and the differentiation of multipotent precursor cells. ES cells were evaluated for their ability to differentiate into pancreatic and islet lineage-restricted stages including pancreatic duodenal homeobox 1 (PDX1)-positive pancreatic precursor cells, early endocrine cell progenitors, and islet hormone-producing cells. Following growth and differentiation in nonselective medium containing serum, murine ES cells spontaneously differentiated into cells individually expressing each of the four major islet hormones: insulin, glucagon, somatostatin, and pancreatic polypeptide. PDX1 immunostaining cells appeared first, before hormone-positive cells had emerged. Hormone-positive cells appeared within focal clusters of cells coexpressing PDX1 and the nonclassical hormone markers peptide YY (YY) and islet amyloid polypeptide (IAPP) in combination with the definitive hormones, characteristic of endocrine cells appearing during early pancreaticogenesis. This system allows the investigation of many facets of islet development since it promotes the appearance of the complete range of islet phenotypes and reproduces important developmental stages of normal islet cytodifferentiation in differentiating ES cell cultures.