Immature rat intestinal stem cells (IEC-6) given the ability to express the transcription factor, pancreatic duodenal homeobox 1 (Pdx-1), yielded YK cells. Although these cells produced multiple enteroendocrine hormones, they did not produce insulin. Exposure of YK cells to 2 nmol/l betacellulin yielded BYK cells that showed the presence of insulin expression in cytoplasm and that secreted insulin into culture media. By examining the mechanism of differentiation in BYK cells, we found that another transcription factor, islet factor 1 (Isl-1) was newly expressed with the disappearance of Pax-6 expression in those cells after exposure to betacellulin. These results indicated that combined expression of Pdx-1 and Isl-1 in IEC-6 cells was required for the production of insulin. In fact, overexpression of both Pdx-1 and Isl-1 in IEC-6 cells (Isl-YK-12, -14, and -15 cells) gave them the ability to express insulin without exposure to betacellulin. Furthermore, implantation of the Isl-YK-14 cells into diabetic rats reduced the animals' plasma glucose levels; glucose levels dropped from 19.4 to 16.9 mmol/l 1 day after the injection of cells. As expected, the plasma insulin concentrations were 2.7 times higher in the diabetic rats injected with Isl-YK-14 cells compared to in controls. In summary, our results indicated that immature intestinal stem cells can differentiate into insulin-producing cells given the ability to express the transcription factors Pdx-1 and Isl-1.