Rapid advancements in biotechnology have enabled the development of new therapeutic modalities for refractory diseases. Among these, stem cell-derived β (SC-β) cells are emerging as next-generation therapeutics for diabetes. However, several challenges must be overcome for these cell-based therapies to enter widespread use. Current SC-β cells exhibit functional immaturity, and transplanted cells face rejection by the host’s immune system. The cells also undergo apoptosis shortly after transplantation due to insufficient oxygen supply. Additionally, the use of stem cell-derived live cells may raise safety concerns, including the risk of teratoma formation. To address these challenges, genome-editing tools, particularly clustered regularly interspaced short palindromic repeats/Cas9 technologies, are being extensively explored owing to their ease of use, modularity, and robustness across diverse cell types. Herein, we provide a comprehensive overview of the various issues in the development of cell-based therapies for diabetes and discuss how genome-editing tools can enhance this emerging therapeutic modality. We also discuss the use of genome editing with SC-β cells for modeling genetic variants in diabetic β cells and correcting pathogenic variants to enable personalized diabetes therapy. Furthermore, we propose future research directions for leveraging genome-editing tools to improve the performance of cell-based therapeutics for diabetes.