The transcription factor Neurogenin3 (Ngn3) is required for islet-cell type specification. Here, we show that hepatic gene transfer of Ngn3 transiently induces insulin in terminally differentiated hepatocytes but fails to transdifferentiate them, i.e., switch their lineage into islet cells. However, Ngn3 leads to long-term diabetes reversal in mice due to the emergence of periportal islet-like cell clusters. These neo-islets display glycemia-regulated insulin, beta-cell-specific transcripts, and an islet-specific transcription cascade, and they produce all four major islet hormones. They appear to arise from hepatic progenitor cells, most likely endoderm-derived oval cells. Thus, transfer of a single lineage-defining transcription factor, Ngn3, is sufficient to induce cell-lineage switching from a hepatic to an islet lineage in these progenitor cells, a process consistent with transdetermination, i.e, lineage switching in lineage-determined, but not terminally differentiated, cells. This paradigm of induced transdetermination of receptive progenitor cells in vivo may be generally applicable to therapeutic organogenesis for multiple diseases, including diabetes.