Islet transplantation has been hampered by the shortage of islet donors available for diabetes therapy. However, pluripotent stem cells (PSCs) can be an alternative source of insulin-producing cells (IPCs) because of their capacity for self-renewal and differentiation. We described a method to efficiently differentiate PSCs into IPCs by co-culturing mature islets with directed-differentiated pancreatic endoderm (PE) cells from mouse and human PSCs. PE cells co-cultured with islet cells or islet cell-derived conditioned medium (CM) showed increased expression levels of β-cell markers; significantly higher levels of proinsulin- and Newport Green (NG)-positive cells, which revealed the characteristics of insulin producing cells; and increased insulin secretion upon glucose stimulation. Co-culturing human PE cells with islet cells was also effective to differentiate PE cells into IPCs. Diabetic nude mice transplanted with co-cultured cells exhibited restored euglycemia, human C-peptide release, and improved glucose tolerance. Immunohistochemistry revealed that insulin+/C-peptide + cells existed in the grafted tissues. These results suggest that mature islet cells can increase the differentiation efficiency of PE cells into mature IPCs via paracrine effects.