Isolation of endocrine cell precursors from the human fetal pancreas will be important to the study of islet cytodifferentiation and eventually for islet transplantation in insulin-dependent diabetes. These precursor cells, from which all four islet endocrine cell types arise, are present within fetal pancreatic ductal epithelium. After enzymatic digestion and culture of the fetal pancreas, we obtained cell clusters resembling islets, but with a high content of undifferentiated cells. Histochemical staining revealed very high acid beta-galactosidase activity in over 70% of cells within the clusters. After transplantation into athymic nude mice, the islet-like cell clusters gave rise to tissue rich in differentiated endocrine cells, but low in beta-galactosidase activity. The histochemical finding of high acid beta-galactosidase activity in endocrine precursor cells was confirmed by direct measurement of lysosomal enzyme activities. In addition, we found that the expression of acid beta-galactosidase was developmentally regulated, peaking at 18-24 weeks gestation and declining to low levels in adult islets. Using a fluorogenic beta-galactosidase substrate, we were able to isolate a subpopulation of cells high in acid beta-galactosidase activity using fluorescence-activated flow cytometry. Evidence identifying these cells as potential islet cell precursors includes, besides the transplantation experiments, the colocalization in vitro of tyrosine hydroxylase, a marker of embryonic islet cells. Thus, our results indicate that high acid beta-galactosidase activity serves as a marker for a population of fetal pancreatic cells with the potential to differentiate and grow into mature pancreatic endocrine cells.