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. Synopsis Focusing on developmental mechanisms, the results of this study further accelerate successful differentiation of human ESCs into functional pancreatic beta cells. Exclusion of commonly used BMP inhibitors during human embryonic stem cell to pancreatic progenitor differentiation prevents precocious endocrine induction. Sequential exposure of foregut cells to retinoic acid followed by combined EGF/KGF treatment establishes highly pure PDX1+ and PDX1+/NKX6.1+ progenitor populations, respectively. Precise temporal induction of endocrine differentiation in PDX1+/NKX6.1+ progenitors, but not in PDX1+/NKX6.1− progenitors, results in the generation of functional beta‐like cells in vitro. Beta‐like cells exhibit key features of bona fide human beta cells, remain functional after short‐term transplantation, and reduce blood glucose levels in diabetic mice. Focusing on developmental mechanisms, the results of this study further accelerate successful differentiation of human ESCs into functional pancreatic beta cells.