To trace the ontogeny of [beta] cell regrowth in adult transgenic mice that produce interferon-[gamma] in the islets (ins-IFN-[gamma]), their existing [beta] cells were depleted by treatment with high doses of streptozotocin (STZ). Initially,[beta] cell necrosis and degranulation were apparent in STZ-treated mice of both the BALB/c and the ins-IFN-[gamma] transgenic strains. The newly emerging transitional cells were then characterized by ultrastructural analysis. Interestingly, transitional cells harboring both exocrine and endocrine granules appeared frequently in ins-IFN-[gamma] transgenics after high-dose STZ treatment. New [beta] cells were produced primarily by the formation of new islets from the small pancreatic ducts.[beta] cell regeneration in the ins-IFN-[gamma] transgenic mouse model is thus explained primarily by the budding of new islets from the ducts with acinar cells as possible precursors of islet cells.