Beta-cell function is lost in both type 1 and type 2 diabetes. In type 1 diabetes, β-cell loss results from autoimmune destruction, while in type 2 diabetes the exact mechanisms of β-cell functional deterioration remain poorly understood. Stem cells hold a great promise for providing an abundant source of cells for β-cell replacement. The generation of human embryonic stem cell lines, more than a decade ago, raised expectations for an imminent unlimited supply of all cell types needed in regenerative medicine. However, the initial optimism has been replaced by a more cautious view in light of the difficulties involved in realizing this potential. Nevertheless, harnessing the potential of embryonic stem cells for diabetes cell therapy remains a very attractive prospect.