To employ hepatocytes as surrogate beta-cells for gene therapy of diabetes, a regulatory system was devised in this study by placing the human insulin cDNA under the control of the phosphoenolpyruvate carboxykinase (PEPCK) promoter, followed by the cytomegalovirus immediate early promoter-driven enhanced-green-fluorescent-protein open reading frame. The expression cassette was inserted into the adeno-associated virus vector between two inverted terminal repeats, and used to produce recombinant adeno-associated virus (rAAV). HepG2 human hepatoma cells were transduced by rAAV at the desired multiplicity of infection, followed by treatment with various concentrations of retinoic acid, dexamethasone, dibutyryl cAMP (dbcAMP) and 3-isobutyl-1-methylxanthine (IBMX). The cell-culture media were collected at 8, 16 and 24 h later. Proinsulin/insulin levels were determined with human proinsulin/insulin radioimmunoassay kits. Transduction of HepG2 cells by rAAV showed that green fluorescence was produced as early as 12 h after rAAV infection. Flow-cytometrical analysis demonstrated that transduction efficiency increased with the numbers of transducing rAAV particles used. The transduced hepatocytes were shown to secrete immunoreactive proinsulin/insulin, which were stimulated by the concentrations of retinoic acid, dexamethasone and dbcAMP in the culture medium. High conversion from proinsulin into insulin occurred when these cells were treated with dexamethasone and dbcAMP. The presence of IBMX enhanced the secretion of proinsulin/insulin from the dbcAMP-treated cells. We conclude that rAAV is a promising vector for gene therapy of diabetes. Regulated secretion of proinsulin/insulin can be obtained in the rAAV-transduced HepG2 cells conferred with the PEPCK promoter via rAAV-mediated gene transfer.