Development of β-cells from human embryonic stem cells (hESCs) could compensate for the shortage of islet donors required for diabetes therapy. Although pancreatic progenitors have been derived from hESCs using various protocols, no fully functional b-cells could be generated in vitro. We evaluated the in vivo growth and differentiation of PDX1+ pancreatic endoderm cells obtained from hESCs. Here we show site-specific survival and differentiation when comparing cells grafted in the epididymal fat pad or the subcutaneous space of NOD/SCID mice after 12 weeks follow-up. Subcutaneous grafts persisted and expressed PDX1 at all time points analyzed, showed PDX1 and NKX6.1 coexpression after 6 weeks, and contained NGN3+ cells after 12 weeks.These findings suggest that further specification along the pancreatic lineage occured at the subcutaneous site.In sharp contrast, in the fat pad grafts only a minority of PDX1+ cells remained after 2 weeks, and no further pancreatic differentiation was observed later on. In addition, contaminating mesenchymal cells present in the implants further developed into cartilage tissue after 6 weeks implantation in the fat pad, but not in the subcutaneous space. These findings indicate that the in vivo microenvironment plays a critical role in the further differentiation of transplanted pancreatic endoderm cells.