Pdx1 has been shown to convert hepatocytes into both exocrine and endocrine pancreatic cells in mice, but it fails to selectively convert hepatocytes into pure insulin-producing cells (IPCs). The molecular mechanisms underlying the transdifferentiation remain unclear. In this study, we generated a stably transfected rat hepatic cell line named WB-1 that expresses an active form of Pdx1 along with a reporter gene, RIP-eGFP. Our results demonstrate that Pdx1 induces the expression of multiple genes related to endocrine pancreas development and islet function in these liver cells. We do not however find any expression of the late-stage genes (Pax4, Pax6, Isl-1, and MafA) related to beta-cell development, and the cells do not secrete insulin upon the glucose challenge. Yet when WB-1 cells are transplanted into diabetic NOD-scid mice, these genes become activated and hyperglycemia is completely reversed. Detailed comparison of gene expression profiles between pre- and posttransplanted WB-1 cells demonstrates that the WB-1 cells have similar properties as that seen in pancreatic beta-cells. In addition, in vitro culture in high-glucose medium is sufficient to induce complete maturation of WB-1 cells into functional IPCs. In summary, we find that Pdx1-VP16 is able to selectively convert hepatic cells into pancreatic endocrine precursor cells. However, complete transdifferentiation into functional IPCs requires additional external factors, including high glucose or hyperglycemia. Thus, transdifferentiation of hepatocytes into functional IPCs may serve as a viable therapeutic option for patients with type 1 diabetes.