Scientists have used stem cells from human bone marrow to repair defective insulin-producing pancreatic cells responsible for diabetes in mice.
Pancreas cells produce the hormone insulin
The treatment also halted damage to the kidneys caused by the condition.
Researchers from New Orleans' Tulane University are hopeful it can be adapted to treat diabetes in humans.
The study, featured in Proceedings of the National Academy of Sciences, was welcomed as "interesting work" by Diabetes UK.
Stem cells are immature cells which have the capacity to turn into any kind of tissue in the body.
The US team treated diabetic mice who had high blood sugar and damaged kidneys.
One group of mice were injected with stem cells. After three weeks they were shown to be producing higher levels of mouse insulin than untreated mice and had lower blood sugar levels.
The injections also appeared to halt damaging changes taking place in the glomeruli, the bulb-like structures in the kidneys that filter the blood.
Researcher Dr Darwin Prockop said: "We are not certain whether the kidneys improved because the blood sugar was lower or because the human cells were helping to repair the kidneys.
"But we suspect the human cells were repairing the kidneys in much the same way they were repairing the insulin-producing cells in the pancreas."
Dr Prockop said his team were planning to carry out trials in patients with diabetes.
"The physicians will be selecting patients with diabetes whose kidneys are beginning to fail.
"They will determine whether giving the patients large numbers of their own adult stem cells will lower blood sugar, increase secretion of insulin from the pancreas and improve the function of the kidney."
An estimated 2.2 million people in the UK have diabetes, and the numbers are growing.
Of this total, around 250,000 have insulin-dependent, or Type 1 diabetes.
The rest have Type 2 diabetes, which is closely associated with obesity.
Dr Angela Wilson, research director at Diabetes UK, said: "This is interesting work in an exciting area of diabetes research.
"Theoretically, pancreatic beta cells produced from a patient's own bone marrow could be used to treat diabetes, overcoming the requirement for immunosuppression following islet transplantation.
"However, a way to prevent transplanted cells from being destroyed by the body is needed as this is why Type 1 diabetes develops in the first place."