Generation of insulin-producing cells remains a major limitation for cellular replacement therapy in treatment of diabetes. To understand the potential of human umbilical cord blood (hUCB)-derived mononuclear cells (MNCs) in cell replacement therapy for diabetes, we studied MNCs isolated from 270 human umbilical cord blood samples. We characterized these by immunostaining and real-time PCR and studied their ability to differentiate into insulin-producing cells. We observe that freshly isolated MNCs as well as mesenchymal-like cells grown out by in vitro culture of isolated MNCs express key pancreatic transcription factors: pdx1, ngn3, isl1, brn4 and pax6. However, after 32-fold expansion, MNCs show decreased abundance of pdx1 and ngn3, indicating that islet/pancreatic progenitors detected in freshly isolated MNCs die or are diluted out during in vitro expansion. We therefore transplanted freshly isolated MNCs in NOD/SCID (immuno-incompetent) or FVB/NJ (immuno-competent) mice to check their ability to differentiate into insulin-producing cells. We observe that after 9 weeks of transplantation, approximately 25% grafts exhibit human insulin-producing (16% immunopositive) cells. The number and abundance of pro-insulin transcript-containing cells increased when the animals underwent partial pancreatectomy, 15 days after transplantation. Our results indicate that such hUCB-derived MNC population contains a subset of "pancreas-committed" cells that have the potential to differentiate into insulin-producing cells in vivo. Further studies in understanding the differentiation potential of this subset of pancreas-committed hUCB-derived MNCs will provide us with an autologous source of "lineage-committed" progenitors for cell replacement therapy in diabetes.