A recent study showed an association between diabetes development and the bile acid lithocholic acid (LCA), while another study demonstrated positive biological effects of the conjugated bile acid, taurocholic acid (TCA), on pancreatic cells. Thus, this study aimed to encapsulate TCA with primary islets (graft) and study the biological effects of the graft, post-transplantation, in diabetic mice, including effects on LCA concentrations. Sixteen mature adult mice were made diabetic and randomly divided into two equal groups, control and test (transplanted encapsulated islets without or with TCA). Graft pharmaceutical features pre-transplantation, and biological effects including on LCA concentrations post-transplantation, were measured. TCA-microcapsules had an oval shape and similar size compared with the control. The treatment group survived longer, showed improved glucose and interleukin-6 concentrations, and lower LCA concentrations in plasma, large intestine, faeces, liver and spleen, compared with control. Results suggest that TCA incorporation with islets encapsulated graft exerted beneficial effects, but there was no direct and significant dependency between concentrations of interleukin-6 and LCA.