Remarkable advances in protocol development have been achieved to manufacture insulin-secreting islets from human pluripotent stem cells (hPSCs). Distinct from current approaches, we devised a tunable strategy to generate islet spheroids enriched for major islet cell types by incorporating PDX1+ cell budding morphogenesis into staged differentiation. In this process that appears to mimic normal islet morphogenesis, the differentiating islet spheroids organize with endocrine cells that are intermingled or arranged in a core-mantle architecture, accompanied with functional heterogeneity. Through in vitro modelling of human pancreas development, we illustrate the importance of PDX1 and the requirement for EphB3/4 signaling in eliciting cell budding morphogenesis. Using this new approach, we model Mitchell-Riley syndrome with RFX6 knockout hPSCs illustrating unexpected morphogenesis defects in the differentiation towards islet cells. The tunable differentiation system and stem cell-derived islet models described in this work may facilitate addressing fundamental questions in islet biology and probing human pancreas diseases.