Clinical islet transplantation trials have shown that it is possible to at least partially restore functional beta-cell mass in type 1 diabetic patients. However, the scarcity of organ donors and need for intensive immunosuppression prevent the widespread use of this treatment regimen. Progress in stem cell biology provides hope for the solution of these problems. New beta cells could be grown in the laboratory from pancreatic precursors or from more multipotent stem cells. Neogenesis of islets from intrapancreatic precursors has been demonstrated in a number of studies. Fully differentiated beta cells have only been derived in primary cultures, mainly reflecting transdifferentiation from acinar or ductal cells. It is unlikely that these cells could provide a quantitatively sufficient source for cell transplantation. However, the stimulation of endogenous beta-cell regeneration is a promising therapeutic possibility. Extensive proliferation of supposed pancreatic tissue stem cells has also been found, but full maturation of the expanded cells into functional islet cells has not been reported. The most promising possibility to generate theoretically unlimited numbers of beta cells is based on the use of embryonic stem (ES) cells. Human ES cells can be taken through a multiphase differentiation protocol to become insulin-expressing cells that phenotypically resemble immature human fetal beta cells. This field is still in its infancy and many problems need to be solved before ES-cell based products could be developed to the level required for clinical trials in diabetes.