Scientists believe they have been able to produce working "sperm" from cells taken from another part of the body.
Some of the sperm produced early embryos
The cells were able to "fertilise" a mouse egg and begin the process of making an embryo.
If proved safe, stem cells could be a source of viable sperm for infertile men, although scientists say that this is many years away.
British experts say that there is no guarantee that an embryo created this way would develop normally.
A large number of men either cannot produce sperm, or have lost the ability to do so following medical treatment.
For many, the only chance of having a child is to use donor sperm - there is no hope of fathering a child themselves.
One potential answer is to use stem cells - the body's "master cells" - which, in the right conditions, can turn into every tissue the developing foetus needs.
The richest source of these currently is the embryo, although some may persist into adulthood in the body.
Scientists believe that, in theory, certain specialised types of stem cell could be turned into sperm cells.
The latest research, from the Whitehead Institute for Biomedical Research in Cambridge, Massachusetts, US, in conjunction with hospitals in Boston and Harvard University, took stem cells from a region of the early mouse embryo known to the be source of "primordial germ cells".
These cells will eventually prove the source of the fully-formed sperm cells needed for sexual reproduction.
The researchers isolated the right type of embryonic cells, and were able to produce a continuously renewing "line" of germ cells in the laboratory - as would be found in the testes of the mouse.
In addition, they found a way of encouraging these cells to turn into sperm cells.
These were injected into mouse eggs - and the first stages of fertilisation took place.
In half the experiments, a first cell division took place, while in one fifth, the embryo progressed to the so-called blastocyst stage, forming a ball of cells ready to implant into the womb.
However, no live births have yet been achieved, and some experts believe that the sperm cells produced this way may not carry all the information needed to produce a viable foetus.
Professor Azim Surani, from Cambridge University, told BBC News Online that, as well as the genetic code carried by sperm cell, each one also carried information which regulated which genes worked at which vital point in development.
He said: "There is no evidence from any study involving these sperm-like cells that this 'tag' is present - yet it is very important.
"Without it, the function of the cell will not be normal.
"It may well be possible to make germ cells - the problem is that at the moment the details are missing. We don't have full control over the system right now.
"All this is a long way from being used in humans."