The pancreatic ductal stem cells are known to differentiate into islets of Langerhans; however, their yield is limited and the islet population is not defined. Therefore, the aims of the present study were to improvise a methodology for obtaining large numbers of islets in vitro and to characterize their morphological and functional status for islet cell banking and transplantation. Pancreatic ductal epithelial cell cultures were set in serum-free medium. Monolayers of epithelial cells in culture gave rise to islet-like clusters within 3-4 weeks. The identity of neoislets was confirmed by dithizone staining and analysis of the gene expression for endocrine markers by reverse transcriptase-polymerase chain reaction (RT-PCR). The islet population obtained was analysed by image analysis and insulin secretion in response to secretagogues. The cellular extracts from neoislets were immunoreactive to anti-insulin antibody and expressed insulin, glucagon, GLUT-2, PDX-1 and Reg-1 genes. The islets generated within 3-4 weeks exhibited a mixed population of large- and small-sized islets with clear cut dichotomy in the pattern of their insulin secretion in response to L-arginine and glucose. These neoislets maintained their structural and functional integrity on cryopreservation and transplantation indicating their suitability for islet cell banking. Thus, the present study describes an improved method for obtaining a constant supply of large numbers of islets from pancreatic ductal stem cell cultures. The newly generated islets undergo functional maturation indicating their suitability for transplantation.