Abstract: Bone marrow is an abundant source of adult stem cells that can differentiate into numerous cell types. It could provide a potentially unlimited source of islet like cells for transplantation and thus a promising therapy for diabetes mellitus. We studied the in vitro differentiation capacity and the efficiency of the therapeutic potential of human bone marrow derived hematopoietic stem cells (BM-HSCs) in comparison to bone marrow derived mesenchymal stem cells (BM-MSCs) into insulin-producing cells (IPCs) through culturing in high glucose medium containing exendin-4 and 20% fetal calf serum. Their differentiation capacity were assessed by insulin expression analysis using RT-PCR, intracellular insulin expression analysis using flow cytometry and the study of their therapeutic potential in alloxan–induced diabetic rats. We found that both BM-HSCs and BM-MSCs are capable of differentiation into IPCs as evidenced by positive insulin expression using RT-PCR. However, the mean value of insulin positive rate of differentiated BM-HSCs (40%) was significantly higher than that of differentiated BM-MSCs (19%). Also the transplanted differentiated BM-HSCs into the diabetic rats induced faster and better alleviation of fasting blood glucose level than the differentiated BM-MSCs. These results indicates better differentiation capacity of BM-HSCs into IPCs than BM-MSCs. In conclusion bone marrow stem cells offer a promising tool in providing autologous transplants of IPCs for the treatment of diabetes. However, researches must continue to improve the differentiation capacity of these cells.