We examined morphology and function following transplantation of human fetal islet-like clusters (ICCs) in nude mice and compared the functional efficiency of human adult islets and fetal ICCs after transplantation. To assess the optimal site we first transplanted ICCs under the kidney capsule, pancreas, lung, and liver in nude mice. Grafts to the kidney and pancreas matured functionally and morphologically, as evidenced by a 4-fold increase in C peptide after glucose stimulation and the presence of insulin in the grafts of all animals. Grafts to the lung, liver, and spleen did poorly; C peptide was only measurable in two of eight, two of five, or three of five of mice grafted to the lung, liver, or spleen, respectively. Using chemically diabetic nude rats as recipients, we were able to restore normoglycemia using 15,000 ICCs/kg. Lastly, when transplanted under the kidney capsule of normal nude mice, ICCs had significantly higher insulin contents and C peptide release than equivalent grafts of adult islets. In summary, ICCs are an efficient source of insulin-producing cells of potential use in clinical transplantation. In nude mice, both the kidney and the pancreas provide suitable environments for the growth and maturation of undifferentiated human beta-cells.