The purpose of our study was to determine if streptozotocin induced diabetes (SID) in rats produces alterations in hepatic function, as described in poorly controlled diabetic patients, and if islet transplantation (islet-Tx) would subsequently ameliorate this status. Hepatocellular dysfunction was evaluated by the aspartate aminotransferase (SGOT) and the alanine aminotransferase (SGPT) activities in plasma. For the evaluation of cholestasis the plasma alkaline phosphatase (APase) activity was used. These determinations were performed in normal, SID, SID with Islet-Tx, and SID Wistar rats with sham-Tx. Also, glucose was measured in plasma samples, as well as histological studies of the liver were performed. More than 1,000 isogeneic islets (islet-Tx group) or non viable insular tissue (sham-Tx group) were transplanted via mesenteric ileal vein three weeks after SID. The results showed that SID in rats produces alterations in the hepatic function as well as in the structure of the hepatocytes, and the normalization of carbohydrate metabolism by islet transplantation restores normal hepatic function and morphology.