Mesenchymal stem cell (MSC) differentiation is dramatically reduced after long-term in vitro culture, which limits their application. MSCs derived from induced pluripotent stem cells (iPSCs-MSCs) represent a novel source of MSCs. In this study, we investigated the therapeutic effect of iPSC-MSCs on diabetic mice. Streptozocin-induced diabetic mice transplanted with 400 islets alone or with 1 · 10 6 iPSC-MSCs were examined following rapamycin injection (0.1 mg/kg/day, i.p., from days 0 to 9) after transplantation. Our results showed that iPSC-MSCs combined with rapamycin significantly prolonged islet allograft survival in the diabetic mice; 50% of recipients exhibited long-term survival ( > 100 days). Histopathological analysis revealed that iPSCMSCs combined with rapamycin preserved the graft effectively, inhibited inflammatory cell infiltration, and resulted in substantial release of insulin. Flow cytometry results showed that the proportion of CD4 + and CD8 + T cells was significantly reduced, and the number of T regulatory cells increased in the spleen and lymph nodes in the iPSC-MSCs combined with the rapamycin group compared with the rapamycin-alone group. Production of the Th1 proinflammatory cytokines interleukin-2 (IL-2) and interferon-g was reduced, and secretion of the anti-inflammatory cytokines IL-10 and transforming growth factor-b was enhanced compared with the rapamycin group, as determined using enzyme-linked immunosorbent assays. Transwell separation significantly weakened the immunosuppressive effects of iPSC-MSCs on the proliferation of Con A-treated splenic T cells, which indicated that the combined treatment exerted immunosuppressive effects through cell-cell contact and regulation of cytokine production. Taken together, these findings highlight the potential application of iPSCMSCs in islet transplantation.