This manuscript reports the application of the selective-withdrawal coating technique to the microencapsulation of insulin-producing pancreatic islets within thin poly(ethylene glycol) coatings. These polymer coatings permit the islets to respond to changes in glucose concentration by producing insulin with a dose-response profile that is substantially similar to that of unencapsulated islets. Furthermore, the hydrogel capsules exclude the large molecules of the immune system. These results suggest that the microencapsulation technique-which combines droplet formation from a flow of two immiscible fluids with polymerization chemistries-has the characteristics required for the transplantation of islets for the treatment of Type I diabetes.