Beta-cell replacement therapy is a promising approach for the treatment of diabetes but is currently limited by the human islet availability and by the need for systemic immunosuppression. Tissue engineering approaches that will enable the utilization of islets or β-cells from alternative sources (such as porcine islets or human stem cell derived beta cells) and minimize or eliminate the need for immunosuppression have the potential to address these critical limitations. However, tissue engineering approaches are critically hindered by the device size (similar to the size of a large flat screen television) required for efficacy in humans. The primary factor dictating the device size is the oxygen availability to islets to support their viability and function (glucose-stimulated insulin secretion [GSIS]). GSIS is affected (inhibited) at a much higher oxygen partial pressure [pO2] than that of viability (e.g. 10 mmHg as opposed to 0.1 mmHg). Enhanced oxygen supply (higher pO2) than what is available in vivo at transplant sites can have a profound effect on the required device size (potentially reduce it to the size of a postage stamp). This paper summarizes key information on the effect of oxygen on islet viability and function within immunoisolation devices and describes the potential impact of enhanced oxygen supply to devices in vivo on device size reduction.