Diabetes is a debilitating disease affecting millions of people worldwide. The transplantation of insulin-producing, pancreatic islet cells has been an extensively explored approach for the treatment of Type 1 Diabetes. However, the need for a multi-donor source, the strong host immune responses, and a life-long immunosuppressive therapy regimen limits the widespread applicability of islet transplantation. Encapsulation of islet cells within a semi-permeable biomaterial as a means to mask transplanted cells from the host has been shown to be a viable option for the protection of islets upon transplantation. Recent advancements, incorporating additional knowledge of biomaterials, have revitalized the field of islet encapsulation. This thesis work focused on both micro- and nano-scale encapsulation techniques. Initially, a novel, covalently linked alginate-poly(ethylene glycol) (PEG), termed XAlginate-PEG, microcapsule was evaluated, and was shown to exhibit superior stability over traditional ionically bound alginate microcapsules. The XAlginate-PEG capsules exhibited a 5-fold decrease in osmotic swelling than traditional alginate microcapsules, and remained completely intact upon chelation of ionic interactions. In addition, in vitro study of the novel polymer matrix showed high compatibility with mouse insulinoma cell lines, rat and human islets. Furthermore, no disruption in islet function was observed upon encapsulation. The second study of this thesis work focused on the nano-scale encapsulation of islets with a single layer PEG coating. A PEG polymer was grafted directly on the collagen matrix of the islet capsule to form a stable amide bond. PEGylation of the islet cells was shown to camouflage inflammatory agents, such as tissue factor (TF), present on the surface of the islet, while maintaining islet morphology and function. In summary, PEG dampened coagulation cascade activation, and concealed activated factor X (afX) generation under pro-inflammatory culture conditions. The present findings contribute to the field of cellular encapsulation, both in the fabrication of novel encapsulation techniques and the evaluation of nano-scale coatings. The future potential of this research includes the attenuation of immune responses to transplanted cells, elimination of continuous immunosuppression, and provide flexibility in cell source. Furthermore, the platforms evaluated in this thesis are generalized for all cell types, thereby permitting translation of techniques to alternative cellular therapies.