Recent progress in regenerative medicine has suggested that mesenchymal stem cell (MSC)-based therapy is a novel potential cure for diabetes. Betatrophin is a newly identified hormone that can increase the production and expansion of insulin-secreting β-cells when administered to mice. In this study, we evaluated the effect of betatrophin overexpression by human adipose-derived MSCs (ADMSCs) by in vitro experiments, as well as following their transplantation into a mice with streptozotocin (STZ)-induced diabetes. The overexpression of betatrophin did not affect the ADMSCs in terms of proliferation, differentiation and morphology. However, the co-culture of human islets with ADMSCs overexpressing betatrophin (ADMSCs-BET) induced islet proliferation, β-cell specific transcription factor expression, and the islet production of insulin under the stimulation of glucose or KCl and Arg. In addition, ADMSCs-BET enhanced the anti-inflammatory and anti-apoptotic effects of the co-cultured islets compared with ADMSCs cultured alone. In mice with STZ-induced diabetes, the transplantation of ADMSCs-BET ameliorated the hyperglycemia and weight loss associated with STZ-induced diabetes; ADMSCs-BET also significantly enhanced the ratio of β-cells per islet compared to the transplantation of ADMSCs alone. Thus, our study demonstrates a novel strategy for inducing β-cell regeneration. ADMSCs-BET may replace insulin injections by increasing the number of endogenous insulin-producing cells in patients with diabetes. This combined strategy of ADMSC transplantation and gene therapy may prove to be a useful therapy for the treatment of diabetes.