Pancreatic islet transplantation has demonstrated that long-term insulin independence may be achieved in patients suffering from diabetes mellitus type 1. However, because of limited availability of islet tissue, new sources of insulin producing cells that are responsive to glucose are required. Development of pancreatic beta-cell lines from rodent or human origin has progressed slowly in recent years. Current experiments for ex vivo expansion of beta cells and in vitro differentiation of embryonic and adult stem cells into insulin producing beta-cell phenotypes led to promising results. Nevertheless, the cells generated to date lack important characteristics of mature beta cells and generally display reduced insulin secretion and loss of proliferative capacity. Therefore, much better understanding of the mechanisms that regulate expansion and differentiation of stem/progenitor cells is necessary. Here, we review recent advances in the identification of potential cellular sources, and the development of strategies to regenerate or fabricate insulin producing and glucose sensing cells that might enable future cell-based therapies of diabetes mellitus type 1.