It is intended to produce a pancreas that fully functions from an undifferentiated cell. The inventors found that a functional pancreas can be differentiated by using activin and retinoic acid at specific concentrations and subjecting an undifferentiated cell to a specific treatment in advance, thus this object was achieved. The method of the invention comprises A) a preculture step in which an undifferentiated cell is cultured in a medium containing a leukemia inhibitory factor (LIF) to form a colony and a clump is formed; and B) an exposure step in which the undifferentiated cell is exposed to activin and retinoic acid in the absence of LIF.