In the past 10 years there have been substantial developments in adult stem cell research, and the transplantation of these cells now holds great promise for regenerative medicine, such as in the treatment of Type 1 diabetes. A large proportion of studies have focused on stem cells sourced from hematopoietic tissues: bone marrow, umbilical cord blood and peripheral blood. Attempts to transdifferentiate these cells into insulin-producing cells, both in vivo and in vitro, have produced conflicting results. Although insulin production and normalization of blood glucose levels have been described in some studies, the true mechanism of stem cell plasticity remains in question - are the functional changes seen due to true transdifferentiation or do they result from cell fusion or other factors? There is evidence that stem cell plasticity is a true phenomenon, but whether it will ever be of therapeutic benefit for Type 1 diabetes remains uncertain.