We used non-insulin producing pancreatic carcinoma cell line, MIA PaCa-2 and have modulated its culture conditions by using 1% matrigel as extracellular matrix, N2, B27 growth supplements and serum free conditions. Expression of markers was analyzed using qRT-PCR, immunofluorescence and in vitro functional assay for insulin and C-peptide release was assessed using insulin and C-peptide ELISA, respectively. The cells grown under this altered culture conditions have exhibited a transition in the morphology from mesenchymal to epithelial with extensive piling up of cells. A reduction in doubling time from 40 to 18 h, upregulation of beta islet specific markers like pancreatic duodenal homeobox-1 (Pdx-1), C-peptide, insulin, and disappearance of markers like vimentin were observed. On the functional level, the altered morphology bearing cells released high levels of insulin in response to 10 µM tolbutamide (an activator of insulin pathway) and reduced insulin secretion in response to 50 µM nifedipine (inhibitor of the pathway). On the contrary, the original cells (mesenchymal morphology) had failed to release any insulin in response to varying concentrations of glucose and also the activators and inhibitors of the insulin pathway. This investigation thus provides a basis for using this basic developmental biology phenomenon mesenchymal to epithelial transition as a strategy to generate a large number of functional islets from stem cells of mesenchymal origin. J. Cell. Biochem. 9999: XX–XX, 2013. © 2013 Wiley Periodicals, Inc. J. Cell. Biochem. 114: 1642–1652, 2013. © 2013 Wiley Periodicals, Inc.