Background aims. Differentiation or reprogramming of stem cells could be achieved by remodulating the microenvironment, which regulates the fate of cells by soluble factors and contacts. By providing an in vivo-like microenvironment, directional and functional differentiation of stem cells could be achieved in vitro. In this study, the differentiation of mesenchymal stromal cells (MSCs) derived from rat tissues (adipose, rAT; bone marrow, rBM) were analyzed by in vitro and in vivo co-culture experiments. The insulin-producing capacities of islets transplanted under the renal kidney capsule with TAT- and rBM-MSCs were compared and the reduction of hyperglycemia symptoms in rat models was examined. Methods. MSCs prelabeled with green fluorescence protein were co-cultured with islets directly. The insulin production of cells was determined by immunostaining and ELISA. Streptozotocin-induced diabetic rat models were created and MSCs were co-transplanted with the islets under the kidney capsule to confirm the in vitro results. Results. MSCs were differentiated into insulin-producing cells after 38 days of co-culture, confirmed by insulin and C-peptide stainings. In vivo functional studies revealed that the co-culture of islets with MSCs provided higher differentiation efficiency. The weight gain measurement and glucose tolerance test in the rat group co-transplanted of rAT-MSCs and islets indicate a better recovery than islet-alone transplants and co-transplants of islets and rBM-MSCs. Conclusions. rAT-MSCs could be considered as the cell of choice for cell-based treatment of type 1 diabetes. Because the co-transplantation of islets with MSCs increases the number of insulin-producing cells, this method was suggested for clinical applications.