The success of cell replacement therapy for diabetes depends on the availability and generation of an adequate number of islets, preferably from an autologous origin. Stem cells are now being probed for the generation of physiologically competent, insulin-producing cells. In this investigation, we explored the potential of adipose tissue-derived stem cells (ASCs) to differentiate into pancreatic hormone-expressing islet-like cell aggregates (ICAs). We initiated ASC culture from epididymal fat pads of Swiss albino mice to obtain mesenchymal cells, murine epididymal (mE)-ASCs. Subsequent single-cell cloning resulted in a homogeneous cell population with a CD29(+)CD44(+)Sca-1(+) surface antigen expression profile. We formulated a 10-day differentiation protocol to generate insulin-expressing ICAs from mE-ASCs by progressively changing the differentiation cocktail on day 1, day 3, and day 5. Our stage-specific approach successfully differentiated mesodermic mE-ASCs into definitive endoderm (cells expressing Sox17, Foxa2, GATA-4, and cytokeratin [CK]-19), then into pancreatic endoderm (cells expressing pancreatic and duodenal homeobox [PDX]-1, Ngn3, NeuroD, Pax4, and glucose transporter 2), and finally into cells expressing pancreatic hormones (insulin, glucagon, somatostatin). Fluorescence-activated cell sorting analysis showed that day 5 ICAs contained 64.84% +/- 7.03% PDX-1(+) cells, and in day 10 mature ICAs, 48.17% +/- 3% of cells expressed C-peptide. Day 10 ICAs released C-peptide in a glucose-dependent manner, exhibiting in vitro functionality. Electron microscopy of day 10 ICAs revealed the presence of numerous secretory granules within the cell cytoplasm. Calcium alginate-encapsulated day 10 ICAs (1,000-1,200), when transplanted i.p. into streptozotocin-induced diabetic mice, restored normoglycemia within 2 weeks. The data presented here demonstrate the feasibility of using ASCs as a source of autologous stem cells to differentiate into the pancreatic lineage.