The number of patients worldwide suffering from the chronic disease diabetes mellitus is growing at an alarming rate. Insulin-secreting beta-cells in the islet of Langerhans are damaged to different extents in diabetic patients, either through an autoimmune reaction present in type 1 diabetic patients or through inherent changes within beta-cells that affect their function in patients suffering from type 2 diabetes. Cell replacement strategies via islet transplantation offer potential therapeutic options for diabetic patients. However, the discrepancy between the limited number of donor islets and the high number of patients who could benefit from such a treatment reflects the dire need for renewable sources of high-quality beta-cells. Human embryonic stem cells (hESCs) are capable of self-renewal and can differentiate into components of all three germ layers, including all pancreatic lineages. The ability to differentiate hESCs into beta-cells highlights a promising strategy to meet the shortage of beta-cells. Here, we review the different approaches that have been used to direct differentiation of hESCs into pancreatic and beta-cells. We will focus on recent progress in the understanding of signaling pathways and transcription factors during embryonic pancreas development and how this knowledge has helped to improve the methodology for high-efficiency beta-cell differentiation in vitro.