Encapsulation of islets in hydrogel microspheres (microgels) before transplantation into diabetic recipients can establish an adequate immunoisolation barrier to mitigate allogeneic rejection. The synthetic hydrogel macromer PEG-4MAL (4-arm polyethylene glycol terminated with maleimides) is an ideal candidate polymer for immunoisolation applications, since it can be easily modified with thiolated bioactive molecules, allowing precise control of islet microenvironment. Alginate microencapsulation dominates in literature even though alginate provides limited control of islet microenvironment, because no technique exists for islet encapsulation in synthetic microgels. Therefore, a microfluidic platform for the encapsulation of islets in size-controlled PEG-4MAL microgels was developed, and hydrogel composition was optimized to support encapsulated islet function. Islets microencapsulated in optimized PEG-4MAL restored glycemic control better than islets microencapsulated in alginate and equally as well as unencapsulated islets when delivered to epididymal fat pads in diabetic syngeneic mice within bulk vasculogenic hydrogels. Improved function was partially attributed to decreased microgel size vs. alginate, and therefore reduced diffusional barrier. Immuno-isolation potential of this strategy is currently being investigated in allogeneic recipients. In a separate scheme, PEG-4MAL microgels were designed which could capture and display the chimeric immunomodulatory protein SA-FasL in its bioactive form. Simple cotransplantation of SA-FasL presenting microgels with unmodified allogeneic islets under the kidney capsule of diabetic mice resulted in long term graft acceptance without long term immunosuppression. Regulatory T cells mediated this acceptance since their ablation on day 50 post-transplantation prompted rapid graft rejection. Effective control or mitigation of immune responses is critical for successful outcomes in islet transplantation, and this work presents the development of two novel strategies for achieving long term function of allogeneic islet grafts.