The present study was conducted to establish a method to induce differentiation of bone marrow (MB)-derived mesenchymal cells into insulin-producing cells. When mouse BM-derived mesenchymal cells were cultured for 60 days in medium containing 10% fetal calf serum and 25 mM glucose, they expressed insulin. Addition of activin A and betacellulin (BTC) accelerated differentiation, and immunoreactive insulin was detected 14 days after the treatment. Insulin-containing secretory granules were observed in differentiated cells by electron microscopy. Treatment of BM-derived mesenchymal cells with conophylline (CnP) and BTC-delta4 further accelerated differentiation, and mRNA for insulin was detected 5 to 7 days after the treatment. Mesencymal cells treated with CnP and BTC-delta4 responded to a high concentration of glucose and secreted mature insulin. When these cells were transplanted into streptozotocin-treated mice, they markedly reduced the plasma glucose concentration, and the effect continued for at least 4 weeks. These results indicate an efficacy of the combination of CnP and BTC-delta4 in inducing differentiation of BM-derived mesenchymal cells into insulin-producing cells.