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We describe an explant culture system to study the formation of pancreatic-type endocrine cells by the biliary tract. In this model, beta-cells and other endocrine cells appear in the biliary duct epithelium and their number increases. Evidence for an origin from the duct epithelium is threefold. Firstly, differentiating cells transiently co-express insulin and bind Dolichos lectin. Secondly, beta-cells in cultures isolated from Alb-Cre-R26R-LacZ mice are beta-galactosidase positive. Thirdly, co-culture of biliary epithelium and ROSA26 pancreatic buds shows that endocrine cells do not migrate from the pancreas. The expression of the pancreatic transcription factors Pdx1, HNF6 and Sox9 is widespread, as is Hes1, which represses endocrine development, while that of Ngn3, which is a proendocrine transcription factor, is transient, consistent with an early stage of endocrine cell differentiation. Nicotinamide will increase the number of beta-cells formed, while EGF+LIF completely inhibits their formation.