Embryonic/pluripotent stem cells offer the possibility of an unlimited source of cells to be differentiated into beta cells. This requires differentiating the stem cells into pancreatic progenitors by tissue culture, and then transplanting into recipients for the final stages of development into mature beta-cells. Exposing embryonic stem cells seeded onto laminin coated PLGA scaffolds to biochemical cues resulted in enhanced expression of definitive endoderm markers compared to those differentiated on 2D monolayers. The production of tissue specific cells from stem cells can be scaled up using bioreactor cultures. To apply human stem cell derived islet progenitors in a clinical setting, one must first overcome the problem of immune rejection. Immuno-isolating the cells using microencapsulation provides one possible solution. Coating scaffolds with an anti-inflammatory agent could be an effective means of reducing the inflammatory process that results in pericapsular fibrosis and necrosis of the encapsulated cells. This review summarizes the above issues and describes how 3D scaffolds seeded with stem cells and/or pancreatic progenitors may provide a benefit to achieving normalization of blood glucose levels.