The avascular islet tissue preparation, the pseudoislet, was transplanted into the liver of streptozotocin diabetic rats. The vascularization of the islet tissue was studied ultrastructurally over a 2-week period. At 2 days, proliferations of fibroblast-like cells and large amounts of collagen fibers were present at the periphery of grafts. By 7 days, vascular buds were present at the edge of the graft and invaginating into the islet tissue. At this time, diaphragmed fenestrae were present in the endothelial cells of these forming vessels and they were surrounded by a thin continuous basal lamina. By 12 to 14 days, vascularization was complete as determined by the presence of perfused vessels. At this time the mural architecture of the capillary endothelium was identical to that found in pancreatic islets in situ, i.e., diaphragmed fenestrae, transendothelial channels, and a continuous basal lamina. This contrasted sharply with normal hepatic sinusoidal endothelium which has larger open fenestrae, no channels, and a discontinuous or absent basal lamina. In animals that had been labeled with colloidal carbon before pseudoislet transplantation, the fenestrated endothelium in the grafts contained carbon-filled phagocytic vacuoles indicating the hepatic origin of these cells. Also present at this time was a change in the hepatic sinusoids near the graft sites to a near continuous endothelium. This study demonstrates that isolated avascular adult islet cells are capable of inducing a diaphragm-fenestrated endothelium.