Of paramount importance for the development of cell therapies to treat diabetes is the production of sufficient numbers of pancreatic endocrine cells that function similarly to primary islets. We have developed a differentiation process that converts human embryonic stem (hES) cells to endocrine cells capable of synthesizing the pancreatic hormones insulin, glucagon, somatostatin, pancreatic polypeptide and ghrelin. This process mimics in vivo pancreatic organogenesis by directing cells through stages resembling definitive endoderm, gut-tube endoderm, pancreatic endoderm and endocrine precursor--en route to cells that express endocrine hormones. The hES cell-derived insulin-expressing cells have an insulin content approaching that of adult islets. Similar to fetal beta-cells, they release C-peptide in response to multiple secretory stimuli, but only minimally to glucose. Production of these hES cell-derived endocrine cells may represent a critical step in the development of a renewable source of cells for diabetes cell therapy.