Cellular therapy for patients with diabetes is receiving great attention among scientists and clinicians. Bone marrow is considered one of the rich sources of stem cells. However, the limited availability of bone marrow donors precludes its use for all the suitable patients. Human umbilical cord blood (HUCB) is being increasingly used as an alternative source of stem cells for cell-based therapy for malignant and nonmalignant diseases. HUCB is preferred to bone marrow because of its easy availability, low potential for graft-versus-host disease and tumorigenicity as well as infectious complications. Furthermore, no immunosuppression is required. In vitro and in vivo studies have shown that HUCB-derived stem cells can differentiate into insulin-secreting β-cells. Administration of HUCB cells has been shown to improve blood glucose levels in diabetic animals. The first use of autologous HUCB transfusion in type 1 diabetic children is showing promise in reducing the daily requirement of insulin dose and the maintenance of near normoglycemia over a short period of time. The time has come for more clinical trials using autologous and allogenic cord blood transfusion to treat diabetes mellitus.