Background Pancreatic islet cell transplantation is an effective approach to treat type 1 diabetes. However, this therapy is not widely used because of the severe shortage of transplantable donor islets. This study investigated whether mesenchymal stem cells (MSCs) derived from human umbilical cord blood (UCB) could be transdifferentiated into insulin producing cells in vitro and the role of extracellular matrix (ECM) gel in this procedure.Methods Human UCB samples were collected and MSCs were isolated. MSCs specific marker proteins were analyzed by a flow cytometer. The capacities of osteoblast and adipocyte to differentiate were tested. Differentiation into islet like cell was induced by a 15-day protocol with or without ECM gel. Pancreatic characteristics were evaluated with immunofluorescence, reverse transcription polymerase chain reaction (RT-PCR) and flow cytometry. Insulin content and release in response to glucose stimulation were detected with chemiluminescent immunoassay system.Results Sixteen MSCs were isolated from 42 term human UCB units (38%). Human UCB-MSCs expressed MSCs specific markers and could be induced in vitro into osteoblast and adipocyte. Islet like cell clusters appeared about 9 days after pancreatic differentiation in the inducing system with ECM gel. The insulin positive cells accounted for (25.2±3.4)% of the induced cells. The induced cells expressed islet related genes and hormones, but were not very responsive to glucose challenge. When MSCs were induced without ECM gel, clusters formation and secretion of functional islet proteins could not be observed.Conclusions Human UCB-MSCs can differentiate into islet like cells in vitro and ECM gel plays an important role in pancreatic endocrine cell maturation and formation of three dimensional structures.