Stem-cell-derived tissues could transform disease research and therapy, yet most methods generate functionally immature products. We investigate how human pluripotent stem cells (hPSCs) differentiate into pancreatic islets in vitro by profiling DNA methylation, chromatin accessibility, and histone modification changes. We find that enhancer potential is reset upon lineage commitment and show how pervasive epigenetic priming steers endocrine cell fates. Modeling islet differentiation and maturation regulatory circuits reveals genes critical for generating endocrine cells and identifies circadian control as limiting for in vitro islet function. Entrainment to circadian feeding/fasting cycles triggers islet metabolic maturation by inducing cyclic synthesis of energy metabolism and insulin secretion effectors, including antiphasic insulin and glucagon pulses. Following entrainment, hPSC-derived islets gain persistent chromatin changes and rhythmic insulin responses with a raised glucose threshold, a hallmark of functional maturity, and function within days of transplantation. Thus, hPSC-derived tissues are amenable to functional improvement by circadian modulation.