Diabetes is a chronic disease characterized by a deficit in β cell mass and a failure of glucose homeostasis. Both circumstances result in a variety of severe complications and an overall shortened life expectancy. Thus, diabetes represents an attractive candidate for cell therapy. Reversal of diabetes can be achieved through pancreas and islet transplantation, but shortage of donor organs has prompted an intensive search for alternative sources of β cells. This achievement has stimulated the search for appropriate stem cell sources. Both embryonic and adult stem cells have been used to generate surrogate β cells or otherwise restore β cell functioning. In this regard, several studies have reported the generation of insulin-secreting cells from embryonic and adult stem cells that normalized blood glucose values when transplanted into diabetic animal models. Due to β cell complexity, insulin-producing cells generated from stem cells do not possess all β cell attributes. This indicates the need for further development of methods for differentiation and selection of completely functional β cells. While these problems are overcome, diabetic patients may benefit from therapeutic strategies based on autologous stem cell therapies addressing late diabetic complications. In this article, we discuss the recent progress in the generation of insulin-producing cells from embryonic and adult stem cells, together with the challenges for the clinical use of diabetes stem cell therapy. Copyright © 2008 S. Karger AG.