Directed differentiation of human pluripotent stem cells into functional insulin‐producing beta‐like cells holds great promise for cell replacement therapy for patients suffering from diabetes. This approach also offers the unique opportunity to study otherwise inaccessible aspects of human beta cell development and function in vitro. Here, we show that current pancreatic progenitor differentiation protocols promote precocious endocrine commitment, ultimately resulting in the generation of non‐functional polyhormonal cells. Omission of commonly used BMP inhibitors during pancreatic specification prevents precocious endocrine formation while treatment with retinoic acid followed by combined EGF/KGF efficiently generates both PDX1⁺ and subsequent PDX1⁺/NKX6.1⁺ pancreatic progenitor populations, respectively. Precise temporal activation of endocrine differentiation in PDX1⁺/NKX6.1⁺ progenitors produces glucose‐responsive beta‐like cells in vitro that exhibit key features of bona fide human beta cells, remain functional after short‐term transplantation, and reduce blood glucose levels in diabetic mice. Thus, our simplified and scalable system accurately recapitulates key steps of human pancreas development and provides a fast and reproducible supply of functional human beta‐like cells.