Type 1 diabetes mellitus results from autoimmune destruction of the insulin-secreting cells in the pancreas. Daily treatment with exogenous insulin is required, but because of difficulties in achieving physiological control of blood-glucose concentrations, chronic and degenerative complications still occur in a marked fraction of patients. Islet transplantation can normalize metabolic control in a way that has been virtually impossible to achieve with exogenous insulin, but life-long immunosuppression of the recipients is required, limiting the procedure to the most severe forms of diabetes. This article outlines the history of and recent progress in the field, as well as the present immunological challenges and possible strategies for tolerance induction that are crucial to make clinical islet transplantation more widely available.