Islet transplantation corrects chronic hyperglycemia by augmentation of insulin supply from the graft tissue, but the role of endogenous β-cells after transplantation is not clear. In the present study, we examined endogenous β-cell function after glucose homeostasis had been reestablished by islet graft in streptozotocin (STZ)-induced diabetic rats. Fed plasma glucose levels in diabetic rats transplanted with a large number of islets (2500 islets) into the left kidney capsule soon became lower (139.8 ± 8.2 mg/dl) and close to the level in controls (129.7 ± 11.3 mg/dl), and IPGTT exhibited a pattern of plasma glucose response almost identical to control. The insulin and DNA contents, islet area, and the distribution of β-cells that were markedly deteriorated in islets of STZ rats were significantly restored in transplanted rats. The insulin release in response to glucose or α-ketoisocaproate was less in STZ rats, while in islets of transplanted rats the secretion recovered to levels similar to controls. On the other hand, arginine-induced insulin release was conversely hyperresponsive in STZ rats, but in transplanted rats, the response was decreased similar to controls. Thus, as the plasma glucose level normalizes, residual β-cells show a recovery of function that cannot be accounted for by the increase in mass alone.