Twenty to thirty-five neonatal rat pancreases (2.5 to 4.5 days postpartum) were minced, dissociated in a collagenasetrypsin-EDTA solution, washed, centrifuged, resuspended in Tyrode's solution, and transplanted intraperitoneally to an alloxan-diabetic recipient. All of eight highly inbred moderate-diabetic rats (mean pretransplant blood sugar level and daily urine glucose excretion = 340 mg./100 ml. and 6.0 gm., respectively), showed a reversal of the diabetes within several days following isotransplantation (blood sugar and daily urine glucose excretion levels dropped to less than 150 mg./100 ml. and 0.1 gm., respectively). Two of seven highly inbred severe-diabetic rats (mean pretransplant blood sugar level and daily urine glucose excretion = 440 mg./100 ml. and 8.0 gm., respectively), recovered from their diabetes about two weeks following isotransplantation. In these highly inbred recipients which recovered from their diabetes, normoglycemia has persisted for more than five months. Control animals receiving liver transplants showed no significant changes in their diabetes. Exploration of the peritoneal cavity, after two months of remission, demonstrated isolated implants in association with the liver, spleen, pancreas, abdominal wall, etc. Yascularized grafts consisted primarily of cords of heavily granulated (aldehyde fuchsin positive) beta cells. Acinar cells were not identified. By contrast, the recipient pancreas showed few identifiable beta cells (characteristic of alloxan diabetes), but these were heavily granulated, presumably because of the controlled diabetic state. In some grafts, removed several days following implantation, mitotic figures were seen in cells containing aldehyde fuchsin positve granules. Similar homotransplants were carried out in thirty-seven partially inbred moderate-diabetic recipients; 46 per cent showed a transitory recovery from their diabetes lasting three to thirteen days. However, the pretransplant diabetes was re-established in one to three weeks and this was attributed to the rejection of the transplant. These studies indicate that dissociated neonatal pancreas forms functional islet implants capable of reversing diabetes in alloxanized rats.