Human embryonic stem (hES) cells represent a potentially unlimited source of transplantable beta-cells for the treatment of diabetes. It has been reported that hES cells can be directly induced through cytokines or gene manipulations to insulin-producing cells ((IPCs). Here we describe a novel differentiation strategy that robustly directs H1, an National Institutes of Health (NIH)-registered hES cell line, into IPCs. Pdx1, a crucial regulator for pancreatic development, has been shown to convert hES into IPCs by viral vector mediated gene manipulation. Here we report that the TAT-Pdx1 protein can efficiently permeate H1 cell line due to the TAT protein transduction domain sequence fused to its structure. The TAT-Pdx1 protein was transduced in a dose-dependent manner. The transuded Pdx1 functions similarly to endogenous Pdx1: it binds to the insulin promoter and activates its expression. It also activated the expression of transcription factors that are critical to the differentiation of the pancreas such as endogenous Pdx1, NeroD, Ngn3. Functional secretion of insulin into the medium after glucose challenge was observed by ELESA. We also investigated the mechanism of TAT-Pdx1 protein transduction. The Tat-Pdx1 protein penetrated cells by macropinocytosis and was released from endosomes homogeneously in cytoplasm and nuclei. These data suggest that TAT-Pdx1 protein transduction could be a safe and valuable strategy for enhancing insulin gene transcription without requiring gene transfer.