Experimental induction of embryonic stem cells (ESCs) to become pancreatic beta cells can potentially provide ample resource for cell transplantation therapy of type I diabetes mellitus. Most of the previously reported induction strategies were long and complicated, and some required genetic manipulation. Moreover, it has been indicated that the insulin staining of ESC progeny was insulin uptake from the culture medium. Here we show that a simple three-step experimental approach based on the combination induction by activin A, all-trans retinoic acid, and other mature factors is able to induce murine ESCs to differentiate into insulin-producing cells in 2 weeks, and that insulin release of these induced cells is regulated by the glucose concentration. Our insulin-enhanced green fluorescent green protein reporter system excludes the possibility of insulin uptake. Transplantation of these ESC-derived insulin-positive cells can normalize blood glucose levels and rescue the survival of streptozocin-induced diabetic mice. The findings reported here offer a novel in vitro model to study the differentiation mechanism of pancreatic beta cells and a potential source of insulin-producing cells for transplantation therapy of type I diabetes mellitus.