The present study was conducted in an attempt to treat streptozotocin (STZ)-induced hyperglycemia by transplanting β cells derived from pancreatic ductal cells. Ductal cells obtained from neonatal rats were cultured in vitro. Approximately 70% of the cells were converted to insulin-secreting cells by incubating with betacellulin and activin A. Differentiated cells responded to a depolarizing concentration of potassium, tolbutamide and a high concentration of glucose, and insulin secretion increased by 2.5-, 2.3- and 1.6-fold, respectively. We then prepared pseudoislets using the differentiated cells, which exhibited greatly improved glucose-responsiveness, with a high concentration of glucose inducing a 3-fold increase in insulin secretion. We transplanted these pseudoislets into the portal vein of STZ-treated nude mice. Before transplantation, the plasma glucose concentration was above 400 mg/dl, and after transplantation it was markedly reduced, the effect of which persisted for two weeks. These results indicate that STZ-induced hyperglycemia can be treated by transplanting pseudoislets consisting of β cells derived from ductal cells.