The generation of islet-like endocrine clusters from human pluripotent stem cells (hPSCs) has the potential to provide an unlimited source of insulin-producing β cells for the treatment of diabetes. In order for this cell therapy to become widely adopted, highly functional and well-characterized stem cell-derived islets (SC-islets) need to be manufactured at scale. Furthermore, successful SC-islet replacement strategies should prevent significant cell loss immediately following transplantation and avoid long-term immune rejection. This review highlights the most recent advances in the generation and characterization of highly functional SC-islets as well as strategies to ensure graft viability and safety after transplantation.