To trace the ontogeny of β cell regrowth in adult transgenic mice that produce interferon-γ in the islets (ins-IFN-γ), their existing β cells were depleted by treatment with high doses of streptozotocin (STZ). Initially, β cell necrosis and degranulation were apparent in STZ-treated mice of both the BALB/c and the ins-IFN-γ 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-γ transgenics after high-dose STZ treatment. New β cells were produced primarily by the formation of new islets from the small pancreatic ducts. β cell regeneration in the ins-IFN-γ 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.