Transplantation of microencapsulated cells is proposed as a therapy for the treatment of a wide variety of diseases since it allows for transplantation of endocrine cells in the absence of undesired immunosuppression. The technology is based on the principle that foreign cells are protected from the host immune system by an artificial membrane. In spite of the simplicity of the concept, progress in the field of immunoisolation has been hampered for many years due to biocompatibility issues. During the last years important advances have been made in the knowledge of the characteristics and requirements capsules have to meet in order to provide optimal biocompatibility and survival of the enveloped tissue. Novel insight shows that not only the capsules material but also the enveloped cells should be hold responsible for loss of a significant portion of the immunoisolated cells and, thus, failure of the grafts on the long term. Microcapsules without cells can be produced as such that they remain free of any significant foreign body response for prolonged periods of time in both experimental animals and humans. New approaches in which newly discovered inflammatory responses are silenced bring the technology of transplantation of immunoisolated cells close to clinical application.