Type 1 diabetes is a debilitating condition, affecting millions worldwide, that is characterized by the autoimmune destruction of insulin-producing pancreatic islets of Langerhans. Although exogenous insulin administration has traditionally been the mode of treatment for this disease, recent advancements in the transplantation of donor-derived insulin-producing cells have provided new hope for a cure. However, in order for islet transplantation to become a widely used technique, an alternative source of cells must be identified to supplement the limited supply currently available from cadaveric donor organs. Stem cells represent a promising solution to this problem, and current research is being aimed at the creation of islet-endocrine tissue from these undifferentiated cells. This review presents a summary of the research to date involving stem cells and cell replacement therapy for type 1 diabetes. The potential for the differentiation of embryonic stem (ES) cells to islet phenotype is discussed, as well as the possibility of identifying and exploiting a pancreatic progenitor/stem cell from the adult pancreas. The possibility of creating new islets from adult stem cells derived from other tissues, or directly form other terminally differentiated cell types is also addressed. Finally, a model for the isolation and maturation of islets from the neonatal porcine pancreas is discussed as evidence for the existence of an islet precursor cell in the pancreas.