The cellular mechanisms responsible for conversion of islet amyloid polypeptide (IAPP) into insoluble amyloid deposits in non-insulin-dependent diabetes mellitus (NIDDM) are not clear. Overexpression of IAPP and the amino acid sequence of human IAPP (hIAPP) have both been implicated. To examine factors involved in amyloid formation, transgenic mice expressing the hIAPP or rat IAPP (rIAPP) gene were generated. These mice had elevated plasma IAPP concentrations, and they were normoglycemic and normoinsulinemic. No amyloid deposits were detected by light microscopy. To examine the ultrastructure of islets, pancreatic tissue was studied from hIAPP and rIAPP transgenic mice and from age-matched control mice by immunoelectron microscopy. IAPP was immunolocalized in β-cell secretory granules of all mice, and the COOH- and NH₂-terminal flanking peptides of hIAPP were localized in β-cell granules of hIAPP mice. Accumulations of nonfibrillar perivascular IAPP-immunoreactive material were found between capillaries and β-cells in hIAPP transgenic mice but not in rIAPP transgenic or control mice. Similar nonfibrillar masses were identified in islets of an NIDDM patient. Secondary lysosomes in β-cells and macrophages of hIAPP transgenic mice showed dense labeling for IAPP. We suggest that hIAPP is degraded more slowly than rIAPP or mouse IAPP by β-cell lysosomes. Accumulations of IAPP in islet perivascular spaces may represent the early stages of islet amyloid formation.