Diabetes remains a devastating disease, with tremendous cost in terms of human suffering and healthcare expenditures. A bioartificial pancreas has the potential as a promising approach to preventing or reversing complications associated with this disease. Bioartificial pancreatic constructs are based on encapsulation of islet cells with a semipermeable membrane so that cells can be protected from the host's immune system. Encapsulation of islet cells eliminates the requirement of immunosuppressive drugs, and offers a possible solution to the shortage of donors as it may allow the use of animal islets or insulin-producing cells engineered from stem cells. During the past 2 decades, several major approaches for immunoprotection of islets have been studied. The microencapsulation approach is quite promising because of its improved diffusion capacity, and technical ease of transplantation. It has the potential for providing an effective long-term treatment or cure of Type 1 diabetes.