Pancreatic islet transplantation, a curative treatment for Type 1 Diabetes, is restricted from broad application due to hypoxia as well as innate and specific immunity. Encapsulation technology offers the ability to exclude cellular immunity, however clinical success has not yet been achieved. This thesis aims to prepare a transplantation site for islets using a novel encapsulation device through three approaches. Firstly, Aim 1 was to investigate the pre-seeding of accessory cells to the biomimetic nanofibers and evaluate the dimensional stability of these fibers. Cell pre-seeding did not have a significant effect on nanofiber implant volume however porcine decellularized dermis was much more dimensionally stable. Secondly, Aim 2 sought to equip the encapsulation device with boron dye based hypoxia sensors. Using a novel polymer conjugated form of the dye, nanofibers were electrospun that displayed reduced signal decay in a hydrated environment for 3 weeks. Hypoxia, due to a 5X cell density increase in vitro (13.9 vs 6.7 PPM) and after islets are infused in vivo, is evident with spatiotemporal resolution. Thirdly, Aim 3 is to evaluate the ability of the device to precondition a space for islet transplant by neovascularization and immunomodulation. Vessel length density in dorsal skinfold window chambers is increased by FTY720 loaded fibers over the unloaded fibers in healthy mice and moderately diabetic animals (Day 0-3.37%, Day 7-4.22%, p<0.05). Local release of FTY720 decreases the proportion of inflammatory macrophages in surrounding subcutaneous tissue (ratio of inflammatory to non-inflammatory: 14:1 vs 8:1). The nanofiber morphology and local release of FTY720 has been shown to improve islet health in vitro. Using the dimensionally stable ECM from Aim 1 an in vivo void is maintained (confirmed by ultrasound) in order to ensure that the 2 nd procedure to deliver islets can be done without disturbing the tissue implant interface. Therefore, a FTY720 releasing nanofiber membrane could address both innate and specific immunity while also increasing vasculature even in the diabetic environment. These findings improve major challenges, including the need to monitor oxygenation, facing islet transplant as well as other tissue engineering applications.