The ultimate goal in regenerative medicine is to generate fully-differentiated functional cells. Despite the pivotal importance in a replacement cell therapy for type 1 diabetes and some forms of type 2 diabetes, functional insulin-secreting β cells have not yet been directly differentiated from any defined stem cells including pancreatic/islet progenitors. We report here that purified genetically-tagged mouse neurogenin 3-expressing cells, progenitors of all islet lineages, very effectively gave rise to glucose-responsive insulin-producing cells in a unique direct differentiation (DD) system. After as short as 4-6 days of DD, the differentiated β-like cells exhibited many features of mature β cells including expressing a wide range of genes for transcription factors, hormones, posttranscription modification and glucose sensing, performing glucose-stimulated insulin secretion as well as having specific electron dense insulin granules. Transplantation of these insulin-secreting cells ameliorated streptozotocin-induced hyperglycemia. Furthermore, screening from 61 potential maturation factors, we identified a single molecule which converted the β-like cells to be completely glucose-responsive. Remarkably, enriched human islet progenitors gave rise effectively to insulin-producing cells in the same DD condition. The ability to generate functional insulin-secreting cells from DD of islet progenitors provides novel insights into islet developmental biology and has important implications for the regenerative therapy for diabetes mellitus.