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Aims/hypothesis We sought to investigate the stimulation of islet regeneration by transplanted human umbilical cord blood (UCB) cells purified according to high aldehyde dehydrogenase (ALDH) activity (ALDHhi), a conserved characteristic of multiple progenitor lineages. We hypothesised that direct intrapancreatic (iPan) delivery of ALDHhi progenitors would augment islet regeneration via timely and localised exposure to islet-regenerative stimuli. Methods Cells were purified from UCB based on flow cytometry for low ALDH activity (ALDHlo) vs ALDHhi. UCB ALDHlo or ALDHhi cells were compared for surface marker expression, as well as haematopoietic, endothelial and multipotent stromal progenitor content in vitro. UCB ALDHlo or ALDHhi cells were i.v. or iPan injected into streptozotocin-treated non-obese diabetic/severe combined immune-deficient mice temporally monitored for blood glucose, serum insulin and glucose tolerance. Human cell recruitment and survival in the pancreas, insulin content, islet-associated cell proliferation and islet vascularisation were documented in situ. Results UCB-derived ALDHhi cells were highly enriched for haematopoietic and endothelial progenitor frequency, and showed increased expression of progenitor and myeloid cell surface markers. Although i.v. transplantation of ALDHhi cells demonstrated low pancreas engraftment and only transient blood glucose lowering capacity, iPan injected ALDHhi cells reversed established hyperglycaemia, increased serum insulin and improved the response to a glucose challenge. iPan injected ALDHhi cells surrounded damaged islets at early time points and increased islet-associated cell proliferation, resulting in the recovery of beta cell mass. Conclusions/interpretation iPan delivery of UCB ALDHhi cells potentiated islet-associated cell proliferation, insulin production and islet revascularisation, resulting in the recovery of host islet function. Elucidation of the progenitor-specific pathways stimulated during islet regeneration may provide new approaches to promote islet expansion during diabetes. © Springer-Verlag 2012.