Clinical islet transplantation is limited by ischemia-induced islet cell death. Recently, it has been reported that the absent in melanoma (AIM)2 inflammasome is upregulated by ischemic cell death due to recognition of aberrant cytoplasmic self-dsDNA. However, it is unknown whether AIM2 determines the outcome of islet transplantation. To investigate this, isolated wild type (WT) and AIM2-deficient (AIM2−/−) islets were exposed to oxygen-glucose deprivation to mimic ischemia, and their viability, endocrine function, and interferon (IFN) signaling were assessed. Moreover, the revascularization and endocrine function of grafted WT and AIM2−/− islets were analyzed in the mouse dorsal skinfold chamber model and the diabetic kidney capsule model. Ischemic WT and AIM2−/− islets did not differ in their viability. However, AIM2−/− islets exhibited a higher protein level of p202, a transcriptional regulator of IFN-β and IFN-γ gene expression. Accordingly, these cytokines were upregulated in AIM2−/− islets, resulting in a suppressed gene expression and secretion of insulin. Moreover, the revascularization of AIM2−/− islet grafts was deteriorated when compared to WT controls. Furthermore, transplantation of AIM2−/− islets in diabetic mice failed to restore physiological blood glucose levels. These findings indicate that AIM2 crucially determines the engraftment and endocrine function of transplanted islets by repressing IFN signaling.