Cell therapy means treating diseases with the body's own cells. The ability to produce differentiated cell types at will offers a compelling new approach to cell therapy and therefore for the treatment and cure of a plethora of clinical conditions, including diabetes, Parkinson's disease and cardiovascular disease. Until recently, it was thought that differentiated cells could only be produced from embryonic or adult stem cells. Although the results from stem cell studies have been encouraging, perhaps the most startling findings have been the recent observations that differentiated cell types can transdifferentiate (or convert) into a completely different phenotype. Harnessing transdifferentiated cells as a therapeutic modality will complement the use of embryonic and adult stem cells in the treatment of degenerative disorders. In this review, we will examine some examples of transdifferentiation, describe the theoretical and practical issues involved in transdifferentiation research and comment on the long-term therapeutic possibilities.