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Mesenchymal stem cells (MSCs) have already been proved to be multipotent. Our goal was to evaluate the differentiating ability of rat MSCs into insulin-secreting cells in vitro to cure diabetes resulting from abnormal function of pancreatic islets. MSCs were identified by fluorescence-activated cell sorting (FACS). Pdx1 is a transcription factor involved in the early endocrine development. Betacellulin (BTC) is a growth factor involved in beta-cell maturation. MSCs were transfected with plasmids carrying rat Pdx1 and BTC genes. Coexpression of Pdx1 and BTC significantly increased the number of nestin-positive epithelium-like progenitors and islet-like spheroids which differentiated from MSCs. In Pdx1- and BTC-expressed (Pdx1⁺ + BTC⁺) MSCs, insulin and Glut-2 mRNA levels significantly rose. The number of islet-like cells was also evidently augmented. In response to glucose, Pdx1⁺ + BTC⁺ MSCs released insulin and C-peptide. It is concluded that genetic manipulation of transcription factor Pdx1 and growth factor BTC in combination with appropriate differentiating culture could induce MSCs into the pancreatic lineage in vitro and produce islet-like spheroids that could secrete increased levels of insulin in response to glucose.