Induction of islet neogenesis by cellophane wrapping (CW) reverses streptozotocin-induced (STZ) diabetes. Administration of Ilotropin, a protein extract isolated from CW pancreata, causes recapitulation of normal islet ontogeny and reverses STZ diabetes, reducing mortality by 50%. We investigated the hypothesis that a novel gene encoding a constituent of Ilotropin was expressed in the hamster pancreas undergoing islet neogenesis. Islet neogenesis associated protein (INGAP) is a product of a novel gene expressed in regenerating hamster pancreas. Northern blot analysis showed a strong single transcript of 850 bp at 1 and 2 d after CW that disappeared by the 6th day and was absent from untreated control pancreata. INGAP gene is expressed in acinar cells, but not in islets. Western blot analysis demonstrated the presence of INGAP in Ilotropin but not in extracts from control pancreata. A synthetic pentadecapeptide, corresponding to a region unique to INGAP, stimulated a 2.4-fold increase in [3H]thymidine incorporation into hamster duct epithelium in primary culture and a rat pancreatic duct cell line but had no effect on a hamster insulinoma tumor cell line. A portion of human INGAP gene was cloned and appears to be highly homologous to the hamster gene. This data suggests that the INGAP gene is a novel pancreatic gene expressed during islet neogenesis whose protein product is a constituent of Ilotropin and is capable of initiating duct cell proliferation, a prerequisite for islet neogenesis.