In Type 1 diabetes mellitus the insulin-secreting beta-cells in pancreatic islets of Langerhans are selectively destroyed by autoimmune assault. Because diabetes is caused by the loss of a single cell type it is amenable to treatment by cell replacement therapy. Advances in islet transplantation procedures have demonstrated that people with Type 1 diabetes can be cured by human islet transplantation, but the severely limited availability of donor islets has restricted the widespread application of this approach, and driven the search for substitute transplant tissues. Recent experimental studies suggest that three separate sources of tissue show therapeutic potential--xenografts from other species, tissue stem cells and embryonic stem cells. Of these, xenografts are closest to clinical application but there are still major obstacles to be overcome. Insulin-expressing cells have been derived from a number of different stem cell populations but embryonic stem cells offer the major advantage of being able, in principle, to provide the vast numbers of cells required for transplantation therapy.