The nature and even existence of adult pancreatic endocrine stem or progenitor cells is a subject of controversy in the field of beta-cell replacement for diabetes. One place to search for such cells is in the nonendocrine fraction of cells that remain after islet isolation, which consist of a mixture of epithelia and mesenchyme. Culture in G418 resulted in elimination of the mesenchymal cells, leaving a highly purified population of nonendocrine pancreatic epithelial cells (NEPECs). To evaluate their differentiation potential, NEPECs were heritably marked and transplanted under the kidney capsule of immunodeficient mice. When cotransplanted with fetal pancreatic cells, NEPECs were capable of endocrine differentiation. We found no evidence of beta-cell replication or cell fusion that could have explained the appearance of insulin positive cells from a source other than NEPECs. Nonendocrine-to-endocrine differentiation of NEPECs supports the existence of endocrine stem or progenitor cells within the epithelial compartment of the adult human pancreas.