Mutations in the gene coding for hepatocyte nuclear factor-1beta (HNF-1beta) have been known to cause a form of maturity-onset diabetes of the young (MODY5), which is usually characterized by dominantly inherited adolescence-onset diabetes mellitus associated with renal cysts. This report, however, describes recurrence of a novel missense mutation in the HNF-1beta gene, S148W (C443G), in two sibs, one with neonatal diabetes mellitus and the other with neonatal polycystic, dysplastic kidneys leading to early renal failure. The former patient had only a few small renal cysts with normal renal functions, and the latter had only a transient episode of hyperglycemia, which resolved spontaneously. Interestingly, both parents were clinically unaffected, and PCR restriction fragment length polymorphism analysis showed that the mother was a low-level mosaic of normal and mutant HNF-1beta, which suggested that the recurrence was caused by germline mosaicism. This is the first report of permanent neonatal diabetes mellitus caused by a mutation of the HNF-1beta gene as well as the first report of germline mosaicism of this gene. In addition, the two cases described here show that additional factors, genetic or environmental, can have a significant influence on the phenotypic expression of HNF-1beta mutations.