Beta-cell replacement therapy is an effective means to restore glucose homeostasis in select humans with autoimmune diabetes. The scarcity of “healthy” human donor pancreata restricts the broader application of this effective curative therapy. “β-Like” cells derived from human embryonic stem cells (hESC), with the capacity to secrete insulin in a glucose-regulated manner, have been developed in vitro, with limitless capacity for expansion. Here we report long-term diabetes correction in mice transplanted with hESC-derived pancreatic endoderm cells (PECs) in a prevascularized subcutaneous site. This advancement mitigates chronic foreign-body response, utilizes a device- and growth factor-free approach, facilitates in vivo differentiation of PECs into glucose-responsive insulin-producing cells, and reliably restores glycemic control. Basal and stimulated human C-peptide secretion was detected throughout the study, which was abolished upon graft removal. Recipient mice demonstrated physiological clearance of glucose in response to metabolic challenge and safely retrieved grafts contained viable glucose regulatory cells.