Conditions impairing bladder function in children and adults, such as myelomeningocele, posterior urethral valves, bladder exstrophy or spinal cord injury, often need urinary diversion or augmentation cystoplasty as when untreated they may cause severe bladder dysfunction and kidney failure. Currently, the gold standard therapy of end-stage bladder disease refractory to conservative management is enterocystoplasty, a surgical enlargement of the bladder with intestinal tissue. Despite providing functional improvement, enterocystoplasty is associated with significant long-term complications, such as recurrent urinary tract infections, metabolic abnormalities, stone formation, and malignancies. Therefore, there is a strong clinical need for alternative therapies for these reconstructive procedures, of which stem cell-based tissue engineering (TE) is considered to be the most promising future strategy. This review is focused on the recent progress in bladder stem cell research and therapy and the challenges that remain for the development of a functional bladder wall.