Development of beta-cell lines for cell therapy of diabetes is hindered by functional deviations of the replicating cells from the normal beta-cell phenotype. In a recently developed cell line, denoted betaTC-tet, derived from transgenic mice expressing the SV40 T antigen (Tag) under control of the tetracycline (Tc) gene regulatory system, growth arrest can be induced by shutting off Tag expression in the presence of Tc. Here, we compared differentiated cell functions in dividing and growth-arrested betaTC-tet cells, both in culture and in vivo. Proliferating cells stably maintained normal glucose responsiveness for >60 passages in culture. Growth-arrested cells survived for months in culture and in vivo and maintained normal insulin production and secretion. After growth arrest, the cells gradually increased their insulin content three- to fourfold. This occurred without significant changes in insulin biosynthetic rates. At high passage numbers, proliferating betaTC-tet cells exhibited an abnormal increase in hexokinase expression. However, the upregulation of hexokinase was reversible upon growth arrest. Growth-arrested cells transplanted intraperitoneally into syngeneic recipients responded to hyperglycemia by a significant increase in insulin secretion. These findings demonstrate that transformed beta-cells maintain function during long periods of growth arrest, suggesting that conditional transformation of beta-cells may be a useful approach for developing cell therapy for diabetes.