Abstract: The invention relates to a method of forming pancreatic hormone-producing endocrine cells in vitro, wherein pancreatic stem cells are treated with one or more retinoids and/or retinoic acid in vitro and cultured. Especially the dorsal pancreatic bud is used and to the cells obtained by the method. Further, it relates to the use of the pancreatic hormone-producing endocrine cells, for the production of a pharmaceutical composition for transplantation and/or treatment of type 1 and type 2 diabetes. It also relates to a method for treatment of type 1 and type 2 diabetes by administrating the hormone-producing endocrine cells to individuals in need thereof. The invention also regards the use of one or more retinoids and/or retinoic acid for the differentiation, in vitro of pancreatic stem cells into pancreatic hormone-producing endocrine cells, such as glucagon producing cells, and in particular, insulin producing ?-cells.