With the already heightened demand placed on organ donation, stem cell therapy has become a tantalizing idea to provide glucose-responsive insulin-producing cells to Type 1 diabetic patients as an alternative to islet transplantation. Multiple groups have developed varied approaches to create a population of cells with the appropriate characteristics. Both adult and embryonic stem cells have received an enormous amount of attention as possible sources of insulin-producing cells. Although adult stem cells lack the pluripotent nature of their embryonic counterparts, they appear to avoid the ethical debate that has centred around the latter. This may limit the eventual application of embryonic stem cells, which have already shown promise in early mouse models. One must also consider the potential of stem cells to form teratomas, a complication which would prove devastating in an immunologically compromised transplant recipient. The present review looks at the progress to date in both the adult and embryonic stem cells fields as potential treatments for diabetes. We also consider some of the limitations of stem cell therapy and the potential complications that may develop with their use.