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We previously reported the in vitro differentiation of human embryonic stem cells (hESCs) into pancreatic endoderm. Here we demonstrate that islet-like three-dimensional (3D) aggregates can be derived from the pancreatic endoderm by optimizing our previous protocol. Sequential treatment with Wnt3a, activin A, and noggin induced a transient upregulation of T and MixL1 , followed by increased expression of endodermal genes, including FOXA2 , SOX17 , and CXCR4. Subsequent treatment with retinoic acid highly upregulated PDX1 expression. We also show that inhibition of sonic hedgehog signaling by bFGF/activin βB and cotreatment with VEGF and FGF7 produced many 3D cellular clusters that express both SOX17 and PDX1. We found for the first time that proteoglycans and vimentin + mesenchymal cells were mainly localized in hESC-derived PDX1 + clusters. Importantly, treatment with chlorate, an inhibitor of proteoglycan sulfation, together with inhibition of Notch signaling significantly increased the expression of Neurog3 and NeuroD1 , promoting a transition from PDX1 + progenitor cells toward mature pancreatic endocrine cells. Purified dithizone + 3D aggregates generated by our refined protocol produced pancreatic hormones and released insulin in response to both glucose and pharmacological drugs in vitro. Furthermore, the islet-like 3D aggregates decreased blood glucose levels and continued to exhibit pancreatic features after transplantation into diabetic mice. Generation of islet-like 3D cell aggregates from human pluripotent stem cells may overcome the shortage of cadaveric donor islets for future cases of clinical islet transplantation.