Type 1 diabetes mellitus is an autoimmune disease, which results in loss of pancreatic β cells. A myriad of eminent discoveries in stem cell biology have provided insights into the therapeutic potential of stem cells. A significant advance in cell therapy for diabetes has been the extraction of pancreatic islet cells and transplantation into recipients as per the Edmonton protocol. Stem cells, due to their pluripotent ability and expansion potential, provide us with a valuable tool for drug and biomedical research. Uniquely, stem cells can be used as genetic or cell-based therapies to repair, replace or replenish the cells damaged or lost due to degenerative diseases. Consequently, most recent research trends have focused on investigating newer sources to generate insulin-producing cells that are easily obtainable and usable in experimental and therapeutic settings for cell replacement therapy for diabetes. Insulin-producing cells has been isolated and extracted from various sources, including human ES cells, bone marrow or umbilical cord-derived mesenchymal cells, transdifferentiation of liver/gallbladder cells, pancreatic duct cells, islet-derived mesenchymal cells. Yet these cells produce the least amount of insulin compared 34to normal adult pancreas. To enhance the differentiation of adult tissue-derived progenitor cells, the major focus of present research is on growth factors, signaling molecules and processes that would promote differentiation of these cells. This chapter summarizes the advancements in stem cell biology research, problems encountered, limitations and future of stem cell therapy with the emphasis on transplantation of pancreatic islet or β cells as a therapeutic step for the cure of type 1 Diabetes.