Background: Stem cell therapy holds great promise for the repair of injured tissues and organs, and it is one of the most promising therapies for diabetes mellitus. Therefore, the present study was undertaken to elucidate the antidiabetic effect of both mesenchymal stem cells (MSCs) and insulin-producing cells (IPCs) on streptozotocin (STZ)–induced diabetes in rats. Materials and methods: MSCs were derived from bone marrow of male albino rats. MSCs were characterized morphologically and by Cluster of differentiation (CD-ve34) and (CD+ve105). They were then differentiated into IPCs, and both MSCs and IPCs were infused independently into tail veins of rats with STZinduced diabetes. Results: MSC and IPC therapy significantly improved the body weight and serum insulin, alpha-amylase, adiponectin, creatinine, total cholesterol, triacylglycerol, interleukin-6, tumour necrosis factor-alpha, liver L-malonaldehyde and glycogen levels in the STZ-induced diabetes model. Conclusions: Bone marrow–derived MSCs have the capacity to differentiate into IPCs capable of controlling the blood glucose level in rats with STZ-induced diabetes. Furthermore, treatment with MSCs and IPCs can improve aberrant biochemical parameters in an STZ-induced diabetes model.