In this article, we present a novel microfluidic islet array based on a hydrodynamic trapping principle. The lab-on-a-chip studies with live-cell multiparametric imaging allow understanding of physiological and pathophysiological changes of microencapsulated islets under hypoxic conditions. Using this microfluidic array and imaging analysis techniques, we demonstrate that hypoxia impairs the function of microencapsulated islets at the single islet level, showing a heterogeneous pattern reflected in intracellular calcium signaling, mitochondrial energetic, and redox activity. Our approach demonstrates an improvement over conventional hypoxia chambers that is able to rapidly equilibrate to true hypoxia levels through the integration of dynamic oxygenation. This work demonstrates the feasibility of array-based cellular analysis and opens up new modality to conduct informative analysis and cell-based screening for microencapsulated pancreatic islets.