Replacement of the insulin-producing pancreatic islet β cells represents the ultimate treatment for type 1 diabetes. Recent advances in islet transplantation underscore the urgent need for developing alternatives to human tissue donors, which are scarce. Two possible approaches are the expansion of differentiated β cells by reversible immortalization and the generation of insulin-producing cells from embryonic or adult stem cells. It is possible that new insights into endocrine pancreas development will ultimately lead to manipulation of progenitor-cell fate towards the β-cell phenotype of insulin production, storage and regulated secretion. Both allogeneic and autologous surrogate β cells are likely to require protection from recurring autoimmunity. This protection might take the form of tolerization, cell encapsulation, or cell engineering with immunoprotective genes. If successful, these approaches could lead to widespread cell replacement therapy for type 1 diabetes.