Human induced pluripotent stem (hiPS) cells are considered a potential source for the generation of insulin-producing pancreatic β-cells because of their differentiation capacity. In this study, we have developed a five-step xeno-free culture system to efficiently differentiate hiPS cells into insulin-producing cells in vitro. We found that a high NOGGIN concentration is crucial for specifically inducing the differentiation first into pancreatic and duodenal homeobox-1 (PDX1)-positive pancreatic progenitors and then into neurogenin 3 (NGN3)-expressing pancreatic endocrine progenitors, while suppressing the differentiation into hepatic or intestinal cells. We also found that a combination of 3-isobutyl-1-methylxanthine (IBMX), exendin-4, and nicotinamide was important for the differentiation into insulin single-positive cells that expressed various pancreatic β-cell markers. Most notably, the differentiated cells contained endogenous C-peptide pools that were released in response to various insulin secretagogues and high levels of glucose. Therefore, our results demonstrate the feasibility of generating hiPS-derived pancreatic β-cells under xeno-free conditions and highlight their potential to treat patients with type 1 diabetes.