A group of cells developed into a thymus - a critical part of the immune system - when transplanted into mice. The findings, published in Nature Cell Biology, could pave the way to alternatives to organ transplantation.
Experts said the research was promising, but still years away from human therapies.
The thymus is found near the heart and produces a component of the immune system, called T-cells, which fight infection. Scientists at the Medical Research Council centre for regenerative medicine at the University of Edinburgh started with cells from a mouse embryo.
These cells were genetically "reprogrammed" and started to transform into a type of cell found in the thymus. These were mixed with other support-role cells and placed inside mice.
Once inside, the bunch of cells developed into a functional thymus.
It is similar to a feat last year, when lab-grown human brains reached the same level of development as a nine-week-old fetus.
The thymus is a much simpler organ and in these experiments became fully functional. Structurally it contained the two main regions - the cortex and medulla - and it also produced T-cells.
Prof. Clare Blackburn, part of the research team, said it was "tremendously exciting" when the team realized what they had achieved. "This was a complete surprise to us, that we were really being able to generate a fully functional and fully organized organ starting with reprogrammed cells in really a very straightforward way. This is a very exciting advance and it's also very tantalising in terms of the wider field of regenerative medicine."
Patients who need a bone marrow transplant and children who are born without a functioning thymus could all benefit. Ways of boosting the thymus could also help elderly people. The organ shrinks with age and leads to a weaker immune system. However, there are a number of obstacles to overcome before this research moves from animal studies to hospital therapies. The current technique uses embryos. This means the developing thymus would not be a tissue match for the patient.