Cellular replacement therapy holds promise for the treatment of diabetes mellitus but donor tissue is severely limited. Therefore, we investigated whether insulin-secreting cells could be differentiated in vitro from a monolayer of cells expanded from human donor pancreatic islets. We describe a three-step culture protocol that allows for the efficient generation of insulin-producing cell clusters from in vitro expanded, hormone-negative cells. These clusters express insulin at levels of up to 34% that of average freshly isolated human islets and secrete C-peptide upon membrane depolarization. They also contain cells expressing the other major islet hormones (glucagon, somatostatin, and pancreatic polypeptide). The source of the newly differentiated endocrine cells could either be indigenous stem/progenitor cells or the proliferation-associated dedifferentiation and subsequent redifferentiation of mature endocrine cells. The in vitro generated cell clusters may be efficacious in providing islet-like tissue for transplantation into diabetic recipients.