We show that transplantation of adult bone marrow-derived cells expressing c-kit reduces hyperglycemia in mice with streptozotocin-induced pancreatic damage. Although quantitative analysis of the pancreas revealed a low frequency of donor insulin-positive cells, these cells were not present at the onset of blood glucose reduction. Instead, the majority of transplanted cells were localized to ductal and islet structures, and their presence was accompanied by a proliferation of recipient pancreatic cells that resulted in insulin production. The capacity of transplanted bone marrow-derived stem cells to initiate endogenous pancreatic tissue regeneration represents a previously unrecognized means by which these cells can contribute to the restoration of organ function.