Although the source of embryonic stem (ES) cells presents ethical concerns, their use may lead to many clinical benefits if differentiated cell types can be derived from them and used to assemble functional organs. In pancreas, insulin is produced and secreted by specialized structures, islets of Langerhans. Diabetes, which affects 16 million people in the United States, results from abnormal function of pancreatic islets. We have generated cells expressing insulin and other pancreatic endocrine hormones from mouse ES cells. The cells self-assemble to form three-dimensional clusters similar in topology to normal pancreatic islets where pancreatic cell types are in close association with neurons. Glucose triggers insulin release from these cell clusters by mechanisms similar to those employed in vivo. When injected into diabetic mice, the insulin-producing cells undergo rapid vascularization and maintain a clustered, islet-like organization.