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Recent success in pancreatic islet transplantation has energized the field to discover an alternative source of stem cells with differentiation potential to beta cells. Generation of glucose-responsive, insulin-producing beta cells from self-renewing, pluripotent human ESCs (hESCs) has immense potential for diabetes treatment. We report here the development of a novel serum-free protocol to generate insulin-producing islet-like clusters (ILCs) from hESCs grown under feeder-free conditions. In this 36-day protocol, hESCs were treated with sodium butyrate and activin A to generate definitive endoderm coexpressing CXCR4 and Sox17, and CXCR4 and Foxa2. The endoderm population was then converted into cellular aggregates and further differentiated to Pdx1-expressing pancreatic endoderm in the presence of epidermal growth factor, basic fibroblast growth factor, and noggin. Soon thereafter, expression of Ptf1a and Ngn3 was detected, indicative of further pancreatic differentiation. The aggregates were finally matured in the presence of insulin-like growth factor II and nicotinamide. The temporal pattern of pancreas-specific gene expression in the hESC-derived ILCs showed considerable similarity to in vivo pancreas development, and the final population contained representatives of the ductal, exocrine, and endocrine pancreas. The hESC-derived ILCs contained 2%-8% human C-peptide-positive cells, as well as glucagon- and somatostatin-positive cells. Insulin content as high as 70 ng of insulin/mug of DNA was measured in the ILCs, representing levels higher than that of human fetal islets. In addition, the hESC-derived ILCs contained numerous secretory granules, as determined by electron microscopy, and secreted human C-peptide in a glucose-dependent manner. Disclosure of potential conflicts of interest is found at the end of this article.