Alzheimer's disease (AD) is a neurodegenerative disorder that impairs memory formation and disrupts neurocognitive function. This neuropathy is characterized by neural loss, neurodegeneration, and formation of amyloid plaques and neurofibrillary tangles. Approved medications provide only symptomatic relief without affecting AD progression. Because of the multifactorial nature of AD and the absence of effective treatment, stem cell-based therapy has been regarded as an effective, safe, and innovative therapeutic approach to overcome AD. Different sources of stem cells are employed for AD treatment, such as neural stem cells (NSCs), mesenchymal stem cells (MSCs), embryonic stem cells (ESCs), and induced pluripotent stem cells (iPSCs). There is a growing body of evidence supporting the promising therapeutic potential of stem cell transplantation, which might be attributed to the mechanistic actions exerted by stem cells such as inducing hippocampal neurogenesis, secreting paracrine factors, exerting anti-inflammatory activity, showing anti-amyloidogenic potential, and finally resulting in cognitive recovery. Although stem cell-based therapy faces potential hurdles, it holds a potential hope to provide a safe, effective, and feasible clinical application of stem cells in AD patients.