Explants of fetal sheep pancreas transplanted into diabetic athymic mice survive for many months but there is only partial differentiation of the endocrine cells. As an alternative form of graft we examined the possibility of creating islet-like cell clusters (ICCs) by collagenase digestion of the fetal sheep pancreas, as has been described for human and porcine fetal pancreas. Such ICCs did form at the rate of 6-23 per 10 mg pancreas; their size varied between 65 and 474 microns (median 232 microns) and their insulin content was 1.6 +/- 0.2 mU per 20 ICCs. Laser scanning confocal analysis showed that 4.6 +/- 0.7% of the cells contained insulin. Insulin was secreted from ICCs maintained in culture at the daily rate of 2.5 mU per 30 ICCs. Arginine but not glucose or theophylline enhanced acute insulin secretion in vitro. Transplantation of up to 1000 ICCs into athymic and acid mice resulted in sparse growth of the epithelial-like cells in the graft and only partial differentiation of the endocrine cells. Hyperglycaemia in diabetic recipients was not normalized. Thus, while functioning ICCs can be created from fetal sheep pancreas, they do not appear to be appropriate for transplantation to reverse diabetes in mice.