The purpose of this study was to demonstrate that the pancreas of the hamster contains a growth factor(s) that can induce cells associated with the ductular epithelium to differentiate along an endocrine pathway and thereby provide a means of regenerating a functioning islet cell mass. We have shown previously that partial obstruction of the pancreatic duct leads to the induction of nesidioblastosis. A cytosol extract prepared from the partially obstructed hamster pancreas was injected at a dose of 4000 microliters intraperitoneally twice a day for 2 days and produced significant increases in pancreatic weight, protein, and deoxyribonucleic acid of 18%, 18% and 42% respectively, over saline-treated control animals. To assess the effects of this extract on morphology, 150 microliters intraperitoneally twice a day was administered for 21 days. Tissue was processed for histologic, morphometric, and autoradiographic analysis. Budding of endocrine cells from cells of the terminal ductules was observed in cytosol-injected animals and the number of islets per square millimeter was determined to be increased by 100% compared with saline-treated controls (p less than 0.01). Tritiated thymidine uptake by ductal and islet cells was increased tenfold and sixfold, respectively, over that of control animals (p less than 0.01). Cytosol extract was also administered to hamsters rendered diabetic by streptozocin. Survival in these animals was 100% compared with only 60% for saline-treated control animals (p less than 0.05). Furthermore, the blood levels of glucose in cytosol-treated animals was significantly less than the levels in saline-treated controls (p less than 0.05). We conclude that the pancreas does indeed contain a growth factor(s) responsible for the induction of nesidioblastosis and the new islet tissue is functionally capable of stabilizing a diabetic state.