Mesenchymal stem cells (MSCs) can be derived from adult bone marrow, fat and several foetal tissues. In vitro, MSCs have the capacity to differentiate into multiple mesodermal and non-mesodermal cell lineages. Besides, MSCs possess immunosuppressive effects by modulating the immune function of the major cell populations involved in alloantigen recognition and elimination. The intriguing biology of MSCs makes them strong candidates for cell-based therapy against various human diseases. Type 1 diabetes is caused by a cell-mediated autoimmune destruction of pancreatic beta-cells. While insulin replacement remains the cornerstone treatment for type 1 diabetes, the transplantation of pancreatic islets of Langerhans provides a cure for this disorder. And yet, islet transplantation is limited by the lack of donor pancreas. Generation of insulin-producing cells (IPCs) from MSCs represents an attractive alternative. On the one hand, MSCs from pancreas, bone marrow, adipose tissue, umbilical cord blood and cord tissue have the potential to differentiate into IPCs by genetic modification and/or defined culture conditions In vitro. On the other hand, MSCs are able to serve as a cellular vehicle for the expression of human insulin gene. Moreover, protein transduction technology could offer a novel approach for generating IPCs from stem cells including MSCs. In this review, we first summarize the current knowledge on the biological characterization of MSCs. Next, we consider MSCs as surrogate beta-cell source for islet transplantation, and present some basic requirements for these replacement cells. Finally, MSCs-mediated therapeutic neovascularization in type 1 diabetes is discussed.