In experiments on mice, the stem cells were genetically engineered to produce and secrete toxins which kill brain tumours, without killing normal cells or themselves.
Researchers said the next stage was to test the procedure in humans.
A stem cell expert said this was "the future" of cancer treatment.
The study, published in the journal Stem Cells, was the work of scientists from Massachusetts General Hospital and the Harvard Stem Cell Institute.
For many years, they had been researching a stem-cell-based therapy for cancer, which would kill only tumour cells and no others.
They used genetic engineering to make stem cells that spewed out cancer-killing toxins, but, crucially, were also able to resist the effects of the poison they were producing.
They also posed no risk to normal, healthy cells.
In animal tests, the stem cells were surrounded in gel and placed at the site of the brain tumour after it had been removed.
Their cancer cells then died as they had no defence against the toxins.
Dr Khalid Shah, lead author and director of the molecular neurotherapy and imaging lab at Massachusetts General Hospital and Harvard Medical School, said the results were very positive.
"After doing all of the molecular analysis and imaging to track the inhibition of protein synthesis within brain tumours, we do see the toxins kill the cancer cells."
He added: "Cancer-killing toxins have been used with great success in a variety of blood cancers, but they don't work as well in solid tumours because the cancers aren't as accessible and the toxins have a short half-life."
But genetically engineering stem cells has changed all that, he said.
"Now, we have toxin-resistant stem cells that can make and release cancer-killing drugs."
Chris Mason, professor of regenerative medicine at University College London, said: "This is a clever study, which signals the beginning of the next wave of therapies.
"It shows you can attack solid tumours by putting mini pharmacies inside the patient which deliver the toxic payload direct to the tumour.
"Cells can do so much. This is the way the future is going to be."
Nell Barrie, senior science information manager for Cancer Research UK, said it was an "ingenious approach".
"We urgently need better treatments for brain tumours and this could help direct treatment to exactly where it's needed.
"But so far the technique has only been tested in mice and on cancer cells in the lab, so much more work will need to be done before we'll know if it could help patients with brain tumours."
She said this type of research could help boost survival rates and bring much-needed progress for brain cancers.
Dr Shah now plans to test the technique using a number of different therapies on mice with glioblastoma, the most common brain tumour in human adults.
He hopes the therapies could be used in clinical trials within the next five years.

The Barcelona striker is ahead of team-mate Lionel Messi, who is valued by academics at £149m.
The only England players in the top 10 are Tottenham duo Harry Kane (worth £122m) and Dele Alli (£96m).
Paul Pogba, who joined Manchester United for a record £89m in the summer, is worth £136.4m.
The study has been carried out by a team of academics from the CIES Football Observatory, using a transfer value algorithm.
They have calculated the value using criteria that includes player performance and characteristics, such as age and length of contract.
Cristiano Ronaldo, the Ballon d'Or winner and Fifa's world's best player, is seventh on the list at £111m, with Real Madrid team-mate Gareth Bale 14th and valued at £73.8m, less than the £85.3m he cost the La Liga side in 2013.
Pogba is the only player in the top five not based in Spain, with Atletico Madrid's Antoine Griezmann third at £132m and Barcelona's Luis Suarez fifth (£127m).
There are 42 Premier League players in the top 100 including Chelsea's Eden Hazard (£89m), Manchester United's Anthony Martial (£81m), Manchester City's Raheem Sterling (£75m) and Leicester City's Jamie Vardy (£45m).
West Ham midfielder Michail Antonio makes the list at 100, with a value of £31m.
Scientists from Harvard Medical School have discovered a way of turning stem cells into killing machines to fight brain cancer.
[NEXT_CONCEPT]
Neymar is the most valuable player in Europe - worth about £216m - according to a new study which values 10 players at more than 100m euros.