Diabetes is a chronic disease with significant morbidity and mortality. Pancreas or islet cell transplantation is limited by a shortage of donors and chronic immune suppression to prevent allograft rejection. Consequently, interest exists in islet cell neogenesis from embryonic or mesenchymal stem cell as a possible cure for diabetes. However, unless tolerance to islet cells is re-established, diabetes treated by islet cell transplantation would remain a chronic disease secondary to immune suppression related morbidity. If islet cell tolerance could be re-induced, a major clinical hurdle to curing diabetes by islet cell neogenesis may be overcome. Recent studies suggest that adult hematopoietic stem cells (HSC) can reintroduce tolerance to auto-antigens. It is possible that HSC may also be able to switch lineage and, therefore, be a convenient source of stem cells for both inducing tolerance and islet cell regeneration.