Background: The feasibility of using chitosan/gelatin hydrogel as immunoisolative matrix to provide an additional protection to the microencapsulated islet cells was demonstrated in this study. We hope that the use of hydrogel can extend the functional longevity of microencapsulated islet cells during xenotransplantation. Methods: Chitosan/gelatin solution with glycerol 2-phosphate disodium salt hydrate was prepared and utilized as a cell carrier. The biocompatibility of the chitosan/gelatin hydrogel was first established by using a mouse insulinoma cell line, NIT-1. Insulinoma cells were encapsulated in agarose as microspheres and then macroencapsulated in chitosan/gelatin hydrogel. In vitro cell activity, material-mediated cytotoxicity, cytokine-mediated cytotoxicity assay, and insulin secreting profiles of insulinoma/agarose microspheres macroencapsulated in chitosan/gelatin hydrogel were analyzed. For in vivo study, insulinoma/agarose microspheres with chitosan/gelatin solution was applied as an injectable bioartificial pancreas (BAPs). Insulinoma/agarose microspheres suspended in phosphate-buffered saline or in chitosan/gelatin solution was injected into the subcutaneous layer of diabetic rats. Non-fasting blood glucose (NFBG) concentration of rat was measured perioperatively. After pre-determined intervals, the chitosan/gelatin hydrogel containing insulinoma/agarose microspheres was retrieved for histologic examinations. Results: Insulinoma/agarose microspheres macroencapsulated in hydrogel revealed functional activity and secreted insulin continually for 60 days in vitro. Chitosan/gelatin hydrogel was not cytotoxic to islet cells, and in contrast, the hydrogel showed cytoprotective effects against cytokine-mediated cytotoxicity. The NFBG of diabetic rats transplanted with free insulinoma/agarose microspheres was decreased to euglycemia but restored to hyperglycemia in 15 days. Contrarily, the NFBG of rats transplanted with insulinoma/agarose microspheres with hydrogel remained euglycemic for 42 days. Histologic sections revealed that the fibrous tissue envelopment and the infiltrated immune-related cells contributed to the dysfunction of BAPs. Conclusions: This study indicates that using chitosan/gelatin hydrogel as a cell carrier is feasible and can provide an additional protection for the microencapsulated islet cells during xenotransplantation. 2008 Wiley Periodicals, Inc.