We recently reported the isolation and characterization of a population of pancreatic progenitor cells (PPCs) from early trimester human fetal pancreata. The PPCs, being the forerunners of adult pancreatic cell lineages, were amenable to growth and differentiation into insulin-secreting islet-like cell clusters (ICCs) upon stimulation by adequate morphogens. Of note, a novel morphogenic factor, PDZ-domain containing-2 (PDZD2) and its secreted form (sPDZD2) were ubiquitously expressed in the PPCs. Our goals for this study were to evaluate the potential role of sPDZD2 in stimulating PPC differentiation and to establish the optimal concentration for such stimulation. We found that 10(-9)M sPDZD2 promoted PPC differentiation, as evidenced by the upregulation of the pancreatic endocrine markers (PDX-1, NGN3, NEURO-D, ISL-1, NKX 2.2, NKX 6.1) and INSULIN mRNA. Inhibited endogenous production of sPDZD2 suppressed expression of these factors. Secreted PDZD2 treatment significantly elevated the C-peptide content of the ICCs and increased the basal rate of insulin secretion. However, they remained unresponsive to glucose stimulation, reflected by a minimal increase in GLUT-2 and GLUCOKINASE mRNA expression. Interestingly, sPDZD2 treatment induced increased expression of the L-type voltage-gated calcium channel (Ca(v)1.2) in the ICCs, triggering calcium ion influx under KCl stimulation and conferring an ability to secrete insulin in response to KCl. Pancreatic progenitor cells from 10- and 13-week fetal pancreata showed peak expression of endogenous sPDZD2, implying that sPDZD2 has a specific role in islet development during the first trimester. In conclusion, our data suggest that sPDZD2 promotes functional maturation of human fetal PPC-derived ICCs, thus enhancing its transplanting potentials.