The direct co-culturing effect of rat bone-marrow-derived mesenchymal stem cells (rBM-MSCs) on the pancreatic-islets (PIs) was studied to obtain functional islet cells. MSCs were isolated from rat bone marrow and cultivated under standard conditions. Following their characterization, the rBM-MSCs were directly (with cell-islet contact) co-cultured with recovered PIs together with the single cell cultures of those cell cultures as a control. The effect of direct co-cultures of rBM-MSCs with the PIs of normal rats was investigated using immunophenotypical and functional methods. The change in the amount of insulin secretion was evaluated as an indicator for differentiation of rBM-MSCs. One approache for in vitro differentiation to achieve reprogramming for differentiation into suitable cell types by changing the microenvironment of the cells to provide signals that might activate metabolic pathways is to use co-cultures with the microenvironment of the specific cells of the desired cell type, tissue/organ extracts, extracellular matrix compounds or biologically absorbable materials. Differentiated rBM-MSCs were found to be immunopositive for the specific insulin-producing cell marker, insulin, but not in undifferentiated rBM-MSCs. The functionality tests by ELISA confirmed that insulin secretion of co-cultured MSCs with islets was higher than that of islets. These evidences indicated that PIs could be regarded as critical components of the stem cell niche, such that MSCs can be differentiated into insulin-producing cells (IPCs). Moreover, direct cell-to-cell contact might provide additional and independent support. This approach would circumvent the need for PI-stem cell co-culture and could potentially facilitate the production of functional IPCs for future clinical applications. Copyright. (C) 2010 John Wiley & Sons, Ltd.