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Induced pluripotent stem cells (iPSCs) have enormous potential in producing human tissues endlessly. We previously reported that type V collagen (COL5), a pancreatic extracellular matrix protein, promotes islet development and maturation from iPSCs. In this study, we identified a bioactive peptide domain of COL5, WWASKS, through bioinformatic analysis of decellularized pancreatic ECM (dpECM)-derived collagens. RNA-sequencing suggests that WWASKS induces the formation of pancreatic endocrine progenitors while suppressing the development of other types of organs. The expressions of hypoxic genes were significantly downregulated in the endocrine progenitors formed under peptide stimulation. Furthermore, we unveiled an enhancement of iPSC-derived islets’ (i-islets) glucose sensitivity under peptide stimulation. These i-islets secrete insulin in a glucose responsive manner. They were comprised of α, β, δ, and γ cells and were assembled into a tissue architecture similar to that of human islets. Mechanistically, the peptide is able to activate the canonical Wnt signaling pathway, permitting the translocation of β-catenin from the cytoplasm to the nucleus for pancreatic progenitor development. Collectively, for the first time, we demonstrated that an ECM-derived peptide dictates iPSC fate toward the generation of endocrine progenitors and subsequent islet organoids.