Only a small component of human fetal pancreas consists of β cells, and yet this tissue is capable of normalizing the blood glucose levels of diabetic recipients when transplanted. The time taken to achieve this goal is several months, during which time the tissue proliferates and eventually differentiates into β cells. The dynamics of β cell development have not been described previously. We transplanted human fetal pancreas beneath the renal capsule of immunodeficient mice and analysed the grafts for a period of 12 weeks using antibodies against exocrine cells (lipase), endocrine cells and protodifferentiated duct cells. Exocrine cells constituted 48% of all epithelial cells in the untransplanted pancreas, with duct cells comprising 29% and endocrine cells 16% (β cells 7%). The percentage of exocrine cells declined with time after transplantation, with only a small number undergoing apoptosis, and the duct cells increased, the values for these two cell types at 12 weeks being 20 and 57%, respectively. Both cell types appeared to proliferate equally for up to 8 weeks after transplantation, but only duct cells thereafter. Endocrine cells began to increase from 8 weeks after transplantation, representing 28% of epithelial cells (β cells 11%) at this time. Intermediate cells, that is, cells expressing the characteristics of more than one type of mature pancreatic cell, were observed both in the ungrafted pancreas and after transplantation. The commonest intermediate cell type was duct/exocrine, with exocrine/endocrine and duct/endocrine cells also observed, suggesting active transdifferentiation from one cell type to another. We hypothesize that following the transplantation of human fetal pancreatic tissue, exocrine cells mostly transdifferentiate into duct cells and these eventually develop into endocrine cells, in particular β cells.