Human allogeneic pancreatic islet transplantation is a life-changing treatment for patients with severe Type 1 Diabetes (T1D) who suffer from hypoglycemia unawareness and high risk of severe hypoglycemia. However, intensive immunosuppression is required to prevent immune rejection of the graft, that may in turn lead to undesirable side effects such as toxicity to the islet cells, kidney toxicity, occurrence of opportunistic infections, and malignancies. The shortage of cadaveric human islet donors further limits islet transplantation as a treatment option for widespread adoption. Alternatively, porcine islets have been considered as another source of insulin-secreting cells for transplantation in T1D patients, though xeno-transplants raise concerns over the risk of endogenous retrovirus transmission and immunological incompatibility. As a result, technological advancements have been made to protect transplanted islets from immune rejection and inflammation, ideally in the absence of chronic immunosuppression, to improve the outcomes and accessibility of allogeneic islet cell replacement therapies. These include the use of microencapsulation or macroencapsulation devices designed to provide an immunoprotective environment using a cell-impermeable layer, preventing immune cell attack of the transplanted cells. Other up and coming advancements are based on the use of stem cells as the starting source material for generating islet cells ‘on-demand’. These starting stem cell sources include human induced pluripotent stem cells (hiPSCs) that have been genetically engineered to avoid the host immune response, curated HLA-selected donor hiPSCs that can be matched with recipients within a given population, and multipotent stem cells with natural immune privilege properties. These strategies are developed to provide an immune-evasive cell resource for allogeneic cell therapy. This review will summarize the immunological challenges facing islet transplantation and highlight recent bio-engineering and cell-based approaches aimed at avoiding immune rejection, to improve the accessibility of islet cell therapy and enhance treatment outcomes. Better understanding of the different approaches and their limitations can guide future research endeavors towards developing more comprehensive and targeted strategies for creating a more tolerogenic microenvironment, and improve the effectiveness and sustainability of islet transplantation to benefit more patients.