A girl with typical clinical manifestations of neonatal diabetes was observed for 16 months with consecutive evaluations of pancreatic beta- and alpha-cell function and metabolic control. At the diagnosis both the plasma immunoreactive insulin (IRI) and C-peptide concentrations were inappropriate for the contemporaneous hyperglycemia. During the follow-up, the C-peptide fell twice below the detection limit but the beta-cell function recovered partially on both occasions. Based on 24-hour urinary C-peptide excretion, the endogenous insulin secretion was less than 10% of that in non-diabetic infants. When diagnosed the patient had plasma immunoreactive glucagon (IRG) and glucagon-like immunoreactivity (GLI) concentrations below the reference range for normal neonates. The IRG normalised within the first month, while the GLI increased to a level exceeding the reference range. Hemoglobin A1 had already risen at the time of diagnosis and subsequently rose to a level indicating poor metabolic control. The findings indicate an immature function of both beta- and alpha-cells at the diagnosis with the alpha-cells maturing within the first month. The recovery of the beta-cell function, after two failures in this patient with permanent neonatal diabetes, suggests that the beta-cell damage was at least partially reversible.