There are diseases and injuries in which a patient's cells or tissues are destroyed that can only be adequately corrected by tissue or organ transplants. Stem cells may be able to generate new tissue and even cure diseases for which there is no adequate therapy. Type 1 diabetes (T1DM), an insulin-dependent diabetes, is a chronic disease affecting genetically predisposed individuals, in which insulin-secreting beta (β)-cells within pancreatic islets of Langerhans are selectively and irreversibly destroyed by autoimmune assault. Type 2 diabetes (T2DM) is characterized by a gradual decrease in insulin sensitivity in peripheral tissues and the liver (insulin resistance), followed by a gradual decline in β-cell function and insulin secretion. Successful replacing of damaged β-cells has shown considerable potential in treating T1DM, but lack of adequate donors is a barrier. The literature suggests that embryonic and adult stem cells are promising alternatives in long-term treatment of diabetes. However, any successful strategy should address both the need for β-cell replacement and controlling the autoimmune response to cells that express insulin. This review summarizes the current knowledge of options and the potential of stem cell transplantation in diabetes treatment.