During embryogenesis, islet cells differentiate from primitive duct-like cells. This process leads to the formation of islets in the mesenchyme adjacent to the ducts. In the postnatal period, any further expansion of the pancreatic endocrine cell mass will manifest itself either by a limited proliferation of the existing islet cells, or by a reiteration of ontogenetic development. It is the latter, cell transformation by a process of differentiation from a multipotential cell, that will be referred to in this review as islet neogenesis. To better appreciate the mechanisms underlying islet cell neogenesis, some of the basic concepts of developmental biology will be reviewed. Considerable discussion is devoted to the subject of transdifferentiation, a change in a cell or in its progeny from one differentiated phenotype to another, where the change includes both morphological and functional phenotypic markers. While in vitro studies with fetal and neonatal pancreata strongly suggest that new islet tissue is derived from ductal epithelium, what is not established is whether the primary cell is a committed endocrine cell or duct-like cell capable of transdifferentiation. Next, research in the field of beta-cell neogenesis is surveyed, in preparation for the examination of whether there is a physiological means of inducing islet cell regeneration, and whether the new islet mass will function in a regulated manner to reverse or stabilize a diabetic state? Our belief is that the pancreas retains the ability to regenerate a functioning islet cell mass in the postnatal period, and that the process of cell transformation leading to islet neogenesis is mediated by growth factors that are intrinsic to the gland. Furthermore, it is our contention that these factors act directly or indirectly on a multipotential cell, probably associated with the ductular epithelium, to induce endocrine cell differentiation. In other words, new islet formation in the postnatal period reiterates the normal ontogeny of islet cell development. These ideas will be fully developed in a discussion of the Partial Duct Obstruction (PDO) Model.