Gene-targeted mice, derived from embryonic stem cells, are useful tools to study gene function during development. However, if the inactivation of the target gene results in embryonic lethality, the postdevelopmental function of the gene cannot be further studied. The Cre recombinase-loxP (Cre–loxP) system was developed to overcome this limitation as well as to confine the inactivation of the target gene in a cell- or tissue-specific manner. This system allows for the inactivation of the target gene in a single cell type, thereby allowing the analysis of physiological and pathophysiological consequences of the genetic alteration in mature animals. A unique property of the insulin gene to be expressed only in pancreatic beta cells has allowed using the beta-cell-specific rat insulin promoter (RIP) for Cre recombinase expression to inactivate genes in beta cells. The RIP has been used to inactivate genes in beta cells and analysis of these genetically altered mice has provided important information regarding the role of potential transcription factors and the receptors in vivo, for regulation of insulin gene transcription and in the development of beta cells. The Cre–loxP system is at a relatively early stage of development, and the ability of this technique to virtually target any gene in any tissue at any stage of development makes the study of gene function in a single cell type in vivo an attainable goal. It is anticipated that the continued experience with this system will provide an important tool to determine the role of the transcription factors involved in insulin gene regulation and islet cell differentiation and ultimately provide the basis for novel therapy to treat diabetes.