It is thought that differentiation of beta-cell precursors into mature cells is largely autonomous, but under certain conditions differentiation can be modified by external factors. The factors that modify beta-cell differentiation have not been identified. In this study, we tested whether adult islet cells can affect the differentiation process in mouse and human pancreatic anlage cells. We assessed beta-cell proliferation and differentiation in mouse and human pancreatic anlage cells cocultured with adult islet cells or betaTC3 cells using cellular, molecular, and immunohistochemical methods. Differentiation of murine anlage cells into beta-cells was induced by mature islet cells. It was specific for beta-cells and not a general feature of endodermal derived cells. beta-Cell differentiation required cell-cell contact. The induced cells acquired features of mature beta-cells including increased expression of beta-cell transcription factors and surface expression of receptor for stromal cell-derived factor 1 and glucose transporter-2 (GLUT-2). They secreted insulin in response to glucose and could correct hyperglycemia in vivo when cotransplanted with vascular cells. Human pancreatic anlage cells responded in a similar manner and showed increased expression of pancreatic duodenal homeobox 1 and v-maf musculoaponeurotic fibrosarcoma oncogene homolog A and increased production of proinsulin when cocultured with adult islets. We conclude that mature beta-cells can modify the differentiation of precursor cells and suggest a mechanism whereby changes in differentiation of beta-cells can be affected by other beta-cells.