Islet transplantation as a potential treatment for diabetes has been investigated extensively over the past 10 years. Such an approach, however, will always be limited mainly because it is difficult to obtain sufficiently large numbers of purified islets from cadaveric donors. One alternative to organ or tissue transplantation is to use a renewable source of cells. Stem cells are clonogenic cells capable of both self-renewal and multilineage differentiation. These cells have the potential to proliferate and differentiate into any type of cell and to be genetically modified in vitro, thus providing cells which can be isolated and used for transplantation. Recent studies have given well-defined differentiation protocols, which can be used to guide stem cells into specific cell lineages as neurons, cardiomyocytes and insulin-secreting cells. Moreover, these derived cells have been useful in different animal models. In this regard, insulin-secreting cells derived from R1 mouse embryonic stem cells restore blood glucose concentrations to normal when they are transplanted into streptozotocin-induced diabetic animals. These results show that diabetes could be among the first applications of stem cell therapy. [Diabetologia (2001) 44: 407–415]