The successful function of cochlear prostheses depends on activation of auditory nerve. The survival of auditory nerve neurons, however, can vary widely in candidates for cochlear implants and influence implant efficacy. Stem cells offer the potential for improving the function of cochlear prostheses and increasing the candidate pool by replacing lost auditory nerve. The first phase of studies for stem cell replacement of auditory nerve has examined the in vitro survival and differentiation as well as in vivo differentiation and survival of exogenous embryonic and tissue stem cells placed into scala tympani and/or modiolus. These studies are reviewed and new results on in vivo placement of B-5 mouse embryonic stem cells into scala tympani of the guinea pig cochleae with differentiation into a glutamatergic neuronal phenotype are presented. Research on the integration and connections of stem cell derived neurons in the cochlea is described. Finally, an alternative approach is considered, based on the use of endogenous progenitors rather than exogenous stem cells, with a review of promising findings that have identified stem cell-like progenitors in cochlear and vestibular tissues to provide the potential for auditory nerve replacement.