Mesenchymal stem cells (MSCs) have significant advantages over other stem cell types, and greater potential for immediate clinical application. MSCs would be an interesting cellular source for treatment of type 1 diabetes. In this study, MSCs from human umbilical cord were differentiated into functional insulin-producing cells in vitro by introduction of the pancreatic and duodenal homeobox factor 1 (PDX1) and in the presence of induction factors. The expressions of cell surface antigens were detected by flow cytometry. After induction in an adipogenic medium or an osteogenic medium, the cells were observed by Oil Red O staining and alkaline phosphatase staining. Recombinant adenovirus carrying the PDX1 gene was constructed and MSCs were infected by the recombinant adenovirus, then treated with several inducing factors for differentiation into islet β-like cells. The expression of the genes and protein related to islet β-cells was detected by immunocytochemistry, RT-PCR and Western blot analysis. Insulin and C-peptide secretion were assayed. Our results show that the morphology and immunophenotype of MSCs from human umbilical cord were similar to those present in human bone marrow. The MSCs could be induced to differentiate into osteocytes and adipocytes. After induction by recombined adenovirus vector with induction factors, MSCs were aggregated and presented islet-like bodies. Dithizone staining of these cells was positive. The genes' expression related to islet β-cells was found. After induction, insulin and C-peptide secretion in the supernatant were significantly increased. In conclusion, our results demonstrated that PDX1 gene-modified human umbilical cord mesenchymal stem cells could be differentiated into insulin-producing cells in vitro.