Diabetes mellitus is a devastating disease and over 6% of the population is affected worldwide. The success achieved over the last few years with islet transplantation suggest that diabetes can be cured by the replenishment of deficient beta cells. These observations are proof of concept and have intensified interest in treating diabetes or other diseases not only by cell transplantation but also by stem cells. Work with ES cells has not yet produced cells with the phenotype of true beta cells, but there has been recent progress in directing ES cells to the endoderm. Bone marrow-derived stem cells could initiate pancreatic regeneration. Pancreatic stem/progenitor cells have been identified, and the formation of new beta cells from duct, acinar and liver cells is an active area of investigation. Some agents including glucagon-like peptide-1/exendin-4 can stimulate the regeneration of beta cells in vivo. Overexpression of embryonic transcription factors in stem cells could efficiently induce their differentiation into insulin-expressing cells. New technology, known as protein transduction technology, facilitates the differentiation of stem cells into insulin-producing cells. Recent progress in the search for new sources of beta cells has opened up several possibilities for the development of new treatments for diabetes.