Type I diabetes mellitus is caused by an autoimmune destruction of the insulin-producing beta cells. The major obstacle in using transplantation for curing the disease is the limited source of insulin-producing cells. The isolation of human embryonic stem (hES) cells introduced a new prospect for obtaining a sufficient number of beta cells for transplantation. We present here a method for forming immature islet-like clusters of insulin-producing cells derived from hES cells. The protocol consisted of several steps. Embryoid bodies were first cultured and plated in insulin-transferrin-selenium-fibronectin medium, followed by medium supplemented with N2, B27, and basic fibroblast growth factor (bFGF). Next, the glucose concentration in the medium was lowered, bFGF was withdrawn, and nicotinamide was added. Dissociating the cells and growing them in suspension resulted in the formation of clusters which exhibited higher insulin secretion and had longer durability than cells grown as monolayers. Reverse transcription-polymerase chain reaction detected an enhanced expression of pancreatic genes in the differentiated cells. Immunofluorescence and in situ hybridization analyses revealed a high percentage of insulin-expressing cells in the clusters. In addition to insulin, most cells also coexpressed glucagon or somatostatin, indicating a similarity to immature pancreatic cells. Further improvement of this insulin-producing cell protocol may lead to the formation of an unlimited source of cells suitable for transplantation.