Type 1 diabetes mellitus—characterized by the permanent destruction of insulin-secreting β-cells—is responsive to cell-based treatments that replace lost β-cell populations. The current gold standard of pancreas transplantation provides only temporary independence from exogenous insulin and is fraught with complications, including increased mortality. Stem cells offer a number of theoretical advantages over current therapies. Our review will focus on the development of treatments involving tissue stem cells from bone marrow, liver and pancreatic cells, as well as the potential use of embryonic and induced pluripotent stem cells for Type 1 diabetes therapy. While the body of research involving stem cells is at once promising and inconsistent, bone marrow-derived mesenchymal stem cell transplantation seems to offer the most compelling evidence of efficacy. These cells have been demonstrated to increase endogenous insulin production, while partially mitigating the autoimmune destruction of newly formed β-cells. However, recently successful experiments involving induced pluripotent stem cells could quickly move them into the foreground of therapeutic research. We address the limitations encountered by present research and look toward the future of stem cell treatments for Type 1 diabetes.