The transplantation of pancreatic beta cells or hepatocytes represents a potential therapeutic approach for type I diabetes and inherited liver diseases, respectively. Furthermore, acquired liver diseases, particularly acute hepatic failure due to toxic or viral injury, have been treated in limited clinical trials with fetal and adult hepatocytes. However, a major limitation is the insufficient amount of beta cells and hepatocytes available for grafts. Alternative sources of these cells have yet to be determined. During the past few years, progress has been made in the development of new strategies to produce mature beta cells and hepatocytes. In this review, we outline the current state of scientific understanding and controversy regarding the properties of embryonic and adult stem cells in the field of hepatobiliary and pancreatic diseases. Our objective is to provide a framework of understanding for the challenges behind translating fundamental stem cell biology into clinical therapies.