Non-obese diabetic (NOD) mice provide a model for type 1 diabetes mellitus. We previously showed that allogeneic bone marrow transplantation (ABMT) can prevent and treat insulitis and overt diabetes in NOD mice. However, ABMT alone could not be used to treat overt diabetes in NOD mice whose islets had been completely destroyed. To provide insulin-producing cells, pancreatic tissue from newborn mice was grafted under the renal capsules in combination with ABMT. The aims of concomitant ABMT are as follows. (i) It induces immunological tolerance to the donor-type major histocompatibility complex determinants and permits the host to accept subsequent pancreatic allografts from the bone marrow donor. (ii) ABMT replaces abnormal stem cells with normal stem cells. After transplantation of bone marrow plus newborn pancreas, NOD mice showed reduction of the glycosuria and a normal response in the glucose-tolerance test. Immunohistological study revealed the presence of clustered insulin-containing beta cells in the grafted pancreatic transplants. ABMT may become a viable treatment of established type 1 diabetes mellitus in humans.