The major forms of diabetes are characterized by pancreatic islet -cell dysfunction and decreased -cell numbers, raising hope for cell replacement therapy. Although human islet transplantation is a cell-based therapy under clinical investigation for the treatment of type 1 diabetes, the limited availability of human cadaveric islets for transplantation will preclude its widespread therapeutic application. The result has been an intense focus on the development of alternate sources of  cells, such as through the guided differentiation of stem or precursor cell populations or the transdifferentiation of more plentiful mature cell populations. Realizing the potential for cell-based therapies, however, requires a thorough understanding of pancreas development and -cell formation. Pancreas development is coordinated by a complex interplay of signaling pathways and transcription factors that determine early pancreatic specification as well as the later differentiation of exocrine and endocrine lineages. This review describes the current knowledge of these factors as they relate specifically to the emergence of endocrine  cells from pancreatic endoderm. Current therapeutic efforts to generate insulin-producing -like cells from embryonic stem cells have already capitalized on recent advances in our understanding of the embryonic signals and transcription factors that dictate lineage specification and will most certainly be further enhanced by a continuing emphasis on the identification of novel factors and regulatory relationships.Diabetes is rapidly becoming a global epidemic, with a staggering health, societal, and economic impact. Recent estimates by the American Diabetes Association suggest that the lifetime risk of developing diabetes for Americans born in the year 2000 is one in three. Diabetes results when insulin production by the pancreatic islet  cell is unable to meet the metabolic demand of peripheral tissues such as liver, fat, and muscle.A reduction in -cell function and mass leads to hyperglycemia (elevated blood sugar) in both type 1 and type 2 diabetes. In type 1 diabetes, autoimmune destruction of the  cell itself severely reduces -cell mass, resulting in marked hypoinsulinemia and potentially lifethreatening ketoacidosis. In contrast, during the progression to type 2 diabetes, impaired -cell compensation in the setting of insulin resistance (impaired insulin action) eventually leads to -cell failure and a modest but significant reduction in -cell mass (Maclean and Ogilvie 1955; Butler et al. 2003;Yoon et al. 2003). More recently, autoimmunity has been detected in a subset of patients with type 2 diabetes, which has led to a revision of the classification to include LADA, latent autoimmune diabetes of adulthood, underscoring the continuum between type 1 and type 2 diabetes, and raising questions as to the role of immunity and inflammation in -cell dysfunction and death in type 2 diabetes (Syed et al. 2002; Pozzilli and Buzzetti 2007). Conversely, forms of ketosis prone diabetes due to sev...