Scientists have turned adult liver cells into insulin-producing cells able to treat diabetes when transplanted into mice.
Many people with diabetes must have regular insulin shots
It is hoped the work will one day allow the use of a diabetes patient's own liver cells to treat their condition.
At present there are limited supplies of donor cells for transplants, and patients run the risk of rejection.
The study, by Israel's Sheba Medical Center, is published in Proceedings of the National Academy of Sciences.
Diabetes is a potentially life-threatening condition caused by the body's inability to control blood sugar levels.
This is because cells in the pancreas are unable to produce the hormone insulin, either at all or in sufficient quantities.
Recent developments have made it possible to transplant donor insulin-producing cells into diabetes patients to treat the condition.
However, there is a severe shortage of donor tissue, and patients who do undergo surgery must take powerful drugs for the rest of their lives in order to prevent the new cells being rejected.
The Sheba team hopes that their work will avoid the need to rely on donor cells - or controversial alternatives, such as the use of stem cells taken from foetal or embryonic tissue.
They treated adult human liver cells with a factor that controls pancreas development in the embryo, called PDX-1.
This stimulated the cells to behave in the same way as insulin-producing pancreatic cells.
Not only did they start to produce the hormone, they began to secrete it in response to blood sugar levels.
When the cells were transplanted into mice with symptoms of diabetes, the animals' blood sugar levels gradually decreased.
Dr Angela Wilson, research director at the charity Diabetes UK, said: "Shortage of donor pancreases and the need to take anti-rejection drugs for life are two major problems currently limiting pancreatic islet cell transplantation as a treatment for diabetes.
"This research is potentially very exciting. It could eventually lead to therapies that allow individuals with diabetes to be the donors of their own insulin-producing tissue.
"However, it is very early days and we await the next stage with interest."