Diabetes mellitus is a serious chronic disease globally. However, the main methods for controlling blood glucose are still injections and oral hypoglycemic drugs. Stem cell therapy as a novel treatment is gaining attention, especially mesenchymal stem cells (MSCs), which are widely studied due to their low immunogenicity, immunomodulatory properties, and multi-lineage differentiation potential. Clinical research on MSC therapy for diabetes mellitus and its complications is extensive, with multiple studies demonstrating the effectiveness and safety of the treatment. The potential mechanisms of MSC therapy for diabetes mellitus include homing effects and improvement of β-cell function, differentiation of MSCs, regeneration and survival of islets, immune modulation, and improvement of insulin resistance. Possible methods to enhance the therapeutic effects of MSCs in the future could include genetic modification, combination therapies, application of exosomes, and encapsulation techniques. There are still many risks and challenges associated with stem cell therapy for diabetes mellitus that require further in-depth research.