Bone marrow transplantation has been shown to normalize hyperglycemia but the mechanisms underlying pancreatic β-cell regeneration remain elusive. Here, we investigate the capacity of transplanted bone marrow cells to engraft into the pancreas, to adopt an endothelial cell phenotype and to stimulate β-cell regeneration after islet damage. Genetically marked whole bone marrow from Tie2-Cre/ZEG mice was transplanted into lethally irradiated wild-type mice. The fate of the transplanted cells, as well as blood glucose levels and β-cell mass dynamics, was investigated in normal and hyperglycemic recipient mice. Bone marrow transplantation significantly increased β-cell mass and reduced the hyperglycemia of mice subjected to β-cell damage by streptozotocin (STZ). This was associated with enhanced replication of pre-existing β-cells, proportional to the degree of β-cell damage, whereas no evidence was obtained for islet neogenesis. The engrafted bone marrow-derived cells in the pancreas showed little capacity to differentiate into blood vessel endothelium but retained a myeloid cell fate. By contrast, the transplantation evoked pronounced proliferation of recipient endothelial cells. These findings illuminate an important adjuvant function of transplanted bone marrow cells in both angiogenesis and β-cell regeneration. This may have interesting clinical implications, not least for human islet transplantation endeavours, where co-transplantation of islets with bone marrow cells might represent a simple means to improve islet survival and function.