Tremendous progress has been made over the last two decades in the field of pancreatic beta cell replacement therapy as a curative measure for diabetes. Transplantation studies have demonstrated therapeutic efficacy, and cGMP-grade cell products are currently being deployed for the first time in human clinical trials. In this perspective, we discuss current challenges surrounding the generation, delivery, and engraftment of stem cell-derived islet-like cells, along with strategies to induce durable tolerance to grafted cells, with an eye toward a functional cellular-based therapy enabling insulin independence for patients with diabetes.