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Diabetes mellitus (diabetes) is a devastating disease that affects millions of people globally and causes a myriad of complications that lead to both patient morbidity and mortality. Currently available therapies, including insulin injection and beta cell replacement through either pancreas or pancreatic islet transplantation, are limited by the availability of organs. Stem cells provide an alternative treatment option for beta cell replacement through selective differentiation of stem cells into cells that recognize glucose and produce and secrete insulin. Embryonic stem cells, albeit pluripotent, face a number of challenges, including ethical and political concerns and potential teratoma formation. Adipose tissue represents an alternative source of multipotent mesenchymal stem cells, which can be obtained using a relatively simple, non-invasive, and inexpensive method. Similarly to other adult mesenchymal stem cells, adipose-derived stem cells (ADSCs) are capable of differentiating into insulin-producing cells. They are also capable of vasculogenesis and angiogenesis, which facilitate engraftment of donor pancreatic islets when co-transplanted. Additionally, anti-inflammatory and immunomodulatory effects of ADSCs can protect donor islets during the early phase of transplantation and subsequently improve engraftment of donor islets into the recipient organ. Although ADSC-therapy is still in its infancy, the potential benefits of ADSCs are far reaching.