Alzheimer's disease (AD) is one of the most common causes of dementia. Despite several decades of research in AD, there is no standard disease- modifying therapy available and currentlyapproved drugs provide only symptomatic relief. Stem cells hold immense potential to regenerate damaged tissues and are currently tested in some brain-related disorders, such as AD, amyotrophic lateral sclerosis (ALS) and Parkinson's disease (PD). We review stem cell transplantation studies using preclinical and clinical tools. We describe different sources of stem cells used in various animal models and explaining the putative molecular mechanisms that can rescue neurodegenerative disorders. The clinical studies suggest safety, efficacy and translational potential of stem cell therapy. The therapeutic outcome of stem cell transplantation has been promising in many studies, but no unifying hypothesis can convincingly explain the underlying mechanism. Some studies have reported paracrine effects exerted by these stem cells via the release of neurotrophic factors, while other studies describe the immunomodulatory effects exerted by the transplanted cells. There are also reports which indicate that stem cell transplantation might result in endogenous cell proliferation or replacement of diseased cells. In animal models of AD, stem cell transplantation is also believed to increase expression of synaptic proteins.