In order to define the molecular mechanisms regulating the specification and differentiation of pancreatic β-islet cells, we investigated the effect of upregulating Pdx1 and Ngn3 during the differentiation of the β-islet-like cells from murine embryonic stem (ES) cell-derived activin induced-endoderm. Induced overexpression of Pdx1 resulted in a significant upregulation of insulin ( Ins1 and Ins2), and other pancreas-related genes. To enhance the developmental progression from the pancreatic bud to the formation of the endocrine lineages, we induced the overexpression express of Ngn3 together with Pdx1. This combination dramatically increased the level and timing of maximal Ins1 mRNA expression to approximately 100% of that found in the βTC6 insulinoma cell line. Insulin protein and C-peptide expression was confirmed by immunohistochemistry staining. These inductive effects were restricted to c-kit + endoderm enriched EB-derived populations suggesting that Pdx1/Ngn3 functions after the specification of pancreatic endoderm. Although insulin secretion was stimulated by various insulin secretagogues, these cells had only limited glucose response. Microarray analysis was used to evaluate the expression of a broad spectrum of pancreatic endocrine cell-related genes as well as genes associated with glucose responses. Taken together, these findings demonstrate the utility of manipulating Pdx1 and Ngn3 expression in a stage-specific manner as an important new strategy for the efficient generation of functionally immature insulin-producing β-islet cells from ES cells.