Type 1 and some forms of type 2 diabetes mellitus are caused by deficiency of insulin-secretory islet β cells. An ideal treatment for these diseases would therefore be to replace β cells, either by transplanting donated islets or via endogenous regeneration (and controlling the autoimmunity in type 1 diabetes). Unfortunately, the poor availability of donor islets has severely restricted the broad clinical use of islet transplantation. The ability to differentiate embryonic stem cells into insulin-expressing cells initially showed great promise, but the generation of functional β cells has proven extremely difficult and far slower than originally hoped. Pancreatic stem cells (PSC) or transdifferentiation of other cell types in the pancreas may hence provide an alternative renewable source of surrogate β cells. However, the existence of PSC has been hotly debated for many years. In this review, we will discuss the latest development and future perspectives of PSC research, giving readers an overview of this controversial but important area.