Due to the limited supply of donor pancreas, it is imperative that we identify alternative cell sources that can be used to treat diabetes mellitus (DM). Multipotent adipose tissue-derived stem cells (ADSC) can be abundantly and safely isolated for autologous transplantation and therefore are an ideal candidate. Here, we report the derivation of insulin-producing cells from human or rat ADSC by transduction with the pancreatic duodenal homeobox 1 (Pdx1) gene. RT-PCR analyses showed that native ADSC expressed insulin, glucagon, and NeuroD genes that were up-regulated following Pdx1 transduction. ELISA analyses showed that the transduced cells secreted increasing amount of insulin in response to increasing concentration of glucose. Transplantation of these cells under the renal capsule of streptozotocin-induced diabetic rats resulted in lowered blood glucose, higher glucose tolerance, smoother fur, and less cataract. Histological examination showed that the transplanted cells formed tissue-like structures and expressed insulin. Thus, ADSC-expressing Pdx1 appear to be suitable for treatment of DM.