In the past few years research on stem cells has exploded as a tool to develop potential therapies to treat incurable neurodegenerative diseases. Stem cell transplantation has been effective in several animal models, but the underlying restorative mechanisms are still unknown. Several events such as cell fusion, neurotrophic factor release, endogenous stem cell proliferation, and transdifferentiation (adult cell acquisition of new unexpected identities) may explain therapeutic success, in addition to replacement of lost cells. This issue needs to be clarified further to maximize the potential for effective therapies. Preliminary stem transplantation trials have already been performed for some neurodegenerative diseases. There is no effective pharmacological treatment for amyotrophic lateral sclerosis, but recent preliminary data both in experimental and clinical settings have targeted it as an ideal candidate disease for the development of stem cell therapy in humans. This review summarizes recent advances gained in stem cell research applied to neurodegenerative diseases with a special emphasis to the criticisms put forward.