A number of rat islets were co-encapsulated in a diffusion chamber-type device, i.e., macrocapsule, with a thermoreversible polymeric extracellular matrix (ECM) and bioactive ingredient of cross-linked hemoglobin (Hb-C). The ECM was formed from an aqueous solution of N-isopropyl-acrylamide co-polymers with a small amount of acrylic acid, which exhibited unique sol-gel transition in a temperature range of 30-34 degrees C, without noticeable hysteresis. The incorporation of Hb-C in the islet macrocapsule showed a concentration-dependent effect on insulin secretion and viability of the entrapped islets. Insulin secretion stimulation by glucose and cell viability were more than doubled when compared with a control group (without Hb-C), at an optimum Hb-C concentration of 0.25 mM due to its unique oxygen transporting capacity. Furthermore, 0.25 mM Hb-C in the macrocapsule was able to support islet density up to 1000 islets/device in a 154 microl total volume without negative effects on islet functionality and viability. Hb-C incorporation is an effective strategy for a macrocapsule-type biohybrid artificial pancreas for Type-I diabetes treatment, which can be further developed to a rechargeable system by employing the thermoreversible ECM and designing a proper macrocapsule.