The therapeutic potential of transplantation of insulin-secreting pancreatic beta-cells has stimulated interest in using pluripotent embryonic stem (ES) cells as a starting material from which to generate insulin secreting cells in vitro. Mature beta-cells are endodermal in origin so most reported differentiation protocols rely on the identification of endoderm-specific markers. However, endoderm development is an early event in embryogenesis that produces cells destined for the gut and associated organs in the embryo, and for the development of extra-embryonic structures such as the yolk sac. We have demonstrated that mouse ES cells readily differentiate into extra-embryonic endoderm in vitro, and that these cell populations express the insulin gene and other functional elements associated with beta-cells. We suggest that the insulin-expressing cells generated in this and other studies are not authentic pancreatic beta-cells, but may be of extra-embryonic endodermal origin.