OBJECTIVE Keratinocyte growth factor (KGF) is a member of the heparin-binding fibroblast growth factor family with a high degree of specificity for epithelial cells in vitro and in vivo. Our aim was to study the effect of KGF on beta-cell growth and differentiation on islet-like cell clusters derived from human fetal pancreas. METHODS We investigated the effects of KGF, in vitro, on beta-cell differentiation from undifferentiated pancreatic precursor cells and in vivo after transplantating human fetal pancreatic cells into athymic rats treated with KGF. RESULTS Treatment of islet-like cell clusters with KGF in vitro did not change the number of insulin producing cells, as measured by the measurement of insulin content or DNA. The in vivo treatment of recipient rats with KGF increased the number of beta cells within the grafts 8 weeks after transplantation. At this time, glucose-stimulated insulin secretion was evaluated by glucose stimulation tests in rats bearing the transplants. Measurements of human C-peptide concentrations after glucose challenge showed that the newly differentiated beta cells in the KGF-treated group were functionally competent as opposed to the control group, where the graft failed to release insulin appropriately. CONCLUSIONS These findings suggest that in vivo, KGF is capable of inducing human fetal beta-cell expansion. The growth promoting effect of KGF on beta cells occurred mainly through the activation of ductal cell proliferation and their subsequent differentiation into beta cells.