ABSTRACT. Cells isolated from human first trimester umbilical cord perivascular layer (hFTM-PV) tissues display the pluripotent characteristics of stem cells. In this study, we examined whether hFTM-PV cells can differentiate into islet-like clusters (ILCs) in vitro, and whether transplantation of the hFTM-PV cells with and without differentiation in vitro can alleviate diabetes in nude mice. The hFTM-PV cells were differentiated into ILCs in vitro through a simple stepwise culture protocol. To examine the in vivo effects of the cells, the hFTM-PV cells with and without differentiation in vitro were transplanted into the abdominal cavity of nude mice with streptozotocin (STZ)-induced diabetes. Blood glucose levels, body weight, and the survival probability of the diabetic nude mice were then statistically analyzed. The hFTM-PV cells were successfully induced into ILCs that could release insulin in response to elevated concentrations of glucose in vitro. In transplantation experiments, we observed that mice transplanted with the undifferentiated hFTM-PV cells, embryonic body-like cell aggregations, or ILCs all demonstrated normalized hyperglycemia and showed improved survival rate compared with those without cell transplantation. The hFTM-PV cells have the ability to differentiate into ILCs in vitro and transplantations of undifferentiated and differentiated cells can alleviate STZ-induced diabetes in nude mice. This may offer a potential cell source for stem cell-based therapy for treating diabetes in the future.