Pancreatic islet transplantation has demonstrated that long-term insulin independence may be achieved in patients suffering from diabetes mellitus type 1. However, limited availability of islet tissue means that new sources of insulin-producing cells that are responsive to glucose are required. Here, we show that human amnion epithelial cells (HAEC) can be induced to differentiate into functional insulin-producing cells in vitro. After induction of differentiation, HAEC expressed multiple pancreatic beta-cell genes, including insulin, pancreas duodenum homeobox-1, paired box gene 6, NK2 transcription factor-related locus 2, Islet 1, glucokinase, and glucose transporter-2, and released C-peptide in a glucose-regulated manner in response to other extracellular stimulations. The transplantation of induced HAEC into streptozotocin-induced diabetic C57 mice reversed hyperglycemia, restored body weight, and maintained euglycemia for 30 d. These findings indicated that HAEC may be a new source for cell replacement therapy in type 1 diabetes.