The transplantation of microencapsulated islets may allow reversal of hyperglycemia in the absence of immunosuppression. Poly-L-lysine (PLL) on capsules may potentiate the fibrotic reaction against implanted capsules. The aims of this study were to investigate how the biocompatibility of such capsules affects their function in vivo and to compare their efficacy relative to naked islets after intraperitoneal transplantation to nude or immune competent mice. Alloxan-diabetic C57BL/6 wild-type or nude (nu/nu) mice were transplanted with naked BALB/c islets, empty capsules, or microencapsulated BALB/c islets. Three types of capsules were used, one containing a high guluronic acid (G) alginate and PLL, one with a high mannuronic acid (M) alginate and PLL, and one high M alginate capsule with no PLL. Hyperglycemia in nude mice was reversed after transplantation of naked islets or islets encapsulated in a capsule containing high M alginate. Nude mice transplanted with islets encapsulated in the high G capsules showed only a transient reversal of hyperglycemia. In an allogeneic system, naked BALB/c islets were rejected by day 10 after transplantation, whereas the islets encapsulated in high M capsules continued to function for at least a month. When PLL was excluded from the capsules, the grafts functioned for up to 8 weeks. Islets microencapsulated in high G alginate capsules fail to reverse hyperglycemia for more than a few days in nude mice. However, islets in high M alginate capsules can reverse hyperglycemia in nude and immune competent mice. Islets microencapsulated in PLL-free high M alginate capsules function for 8 weeks in immune competent mice.