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Human umbilical cord blood (UCB) hematopoietic progenitor cells (HPC) purified for high aldehyde dehydrogenase activity (ALDHhi) stimulate islet regeneration after transplantation into mice with streptozotocin-induced β cell deletion. However, ALDHhi cells represent a rare progenitor subset and widespread use of UCB ALDHhi cells to stimulate islet regeneration will require progenitor cell expansion without loss of islet regenerative functions. Here we demonstrate that prospectively purified UCB ALDHhi cells expand efficiently under serum-free, xeno-free conditions with minimal growth factor supplementation. Consistent with the concept that ALDH-activity is decreased as progenitor cells differentiate, kinetic analyses over 9 days revealed the frequency of ALDHhi cells diminished as culture time progressed such that total ALDHhi cell number was maximal (increased 3-fold) at day 6. Subsequently, day 6 expanded cells (bulk cells) were sorted after culture to reselect differentiated progeny with low ALDH-activity (ALDHlo subset) from less differentiated progeny with high ALDH-activity (ALDHhi subset). The ALDHhi subset retained primitive cell surface marker coexpression (32.0% ± 7.0% CD34+/CD38- cells, 37.0% ± 6.9% CD34+/CD133+ cells), and demonstrated increased hematopoietic colony forming cell function compared with the ALDHlo subset. Notably, bulk cells or ALDHlo cells did not possess the functional capacity to lower hyperglycemia after transplantation into streptozotocin-treated NOD/SCID mice. However, transplantation of the repurified ALDHhi subset significantly reduced hyperglycemia, improved glucose tolerance, and increased islet-associated cell proliferation and capillary formation. Thus, expansion and delivery of reselected UCB cells that retain high ALDH-activity after short-term culture represents an improved strategy for the development of cellular therapies to enhance islet regeneration in situ.