The constant quest for generation of large number of islets aimed us to explore the differentiation potential of mouse embryo fibroblast cells. Mouse embryo fibroblast cells isolated from 12- to 14-day-old pregnant mice were characterized for their surface markers and tri-lineage differentiation potential. They were subjected to serum-free media containing a cocktail of islet differentiating reagents and analyzed for the expression of pancreatic lineage transcripts. The islet-like cell aggregates (ICAs) was confirmed for their pancreatic properties via immunofluorecence for C-peptide, glucagon, and somatostain. They were positive for CD markers-Sca1, CD44, CD73, and CD90 and negative for hematopoietic markers-CD34 and CD45 at both transcription and translational levels. The transcriptional analysis of the ICAs at different day points exhibited up-regulation of islet markers (Insulin, PDX1, HNF3, Glucagon, and Somatostatin) and down-regulation of MSC-markers (Vimentin and Nestin). They positively stained for dithizone, C-peptide, insulin, glucagon, and somatostatin indicating intact insulin producing machinery. In vitro glucose stimulation assay revealed three-fold increase in insulin secretion as compared to basal glucose with insulin content being the same in both the conditions. The preliminary in vivo data on ICA transplantation showed reversal of diabetes in streptozotocin induced diabetic mice. Our results demonstrate for the first time that mouse embryo fibroblast cells contain a population of MSC-like cells which could differentiate into insulin producing cell aggregates. Hence, our study could be extrapolated for isolation of MSC-like cells from human, medically terminated pregnancies to generate ICAs for treating type 1 diabetic patients.