The paucity of human donors limits broadened application of β-cell replacement therapy. Insulin-producing cells derived from human embryonic stem cells (hESCs) have recently been investigated clinically as a feasible surrogate to primary tissue. Herein, we examine the long-term efficacy of hESC-derived pancreatic endoderm cells (PECs) to maintain normoglycemia posttransplant and characterize the phenotype of the PEC grafts. Mice with chemically induced diabetes were transplanted with PECs into the subcutaneous device-less site. Transplant function was assessed through nonfasting blood glucose measurements, intraperitoneal glucose tolerance testing (IPGTT), and human C-peptide secretion for 517 days. Explanted grafts were assessed for ex vivo function and immunohistochemically. All PEC recipients (n = 8) maintained normoglycemia until graft retrieval. IPGTTs at 365 and 517 days posttransplant did not differ (P > 0.05), however, both demonstrated superior glucose clearance compared with nondiabetic and transplant controls (P < 0.001). Serum C-peptide levels demonstrated significant glucose responsiveness (fasted vs. stimulated) (P < 0.01). Small intragraft cysts were palpable in all mice, which resolved but recurred after aspiration. Cysts showed monomorphic neuroendocrine proliferation and lined by ductal epithelium. Explanted grafts demonstrated similar insulin secretory capacity as human islets and stained positively for endocrine cells. Our results demonstrate the ability of PECs to differentiate in vivo and restore glycemic control while confirming minimal proliferation and absence of neoplastic change within the grafts during the time evaluated.