Tissue-engineered devices have the potential to significantly improve human health. A major impediment to the success of clinically scaled transplants, however, is insufficient oxygen transport, which leads to extensive cell death and dysfunction. To provide in situ supplementation of oxygen within a cellular implant, we developed a hydrolytically reactive oxygen generating material in the form of polydimethylsiloxane (PDMS) encapsulated solid calcium peroxide, termed OxySite. Herein, we demonstrate, for the first time, the successful implementation of this in situ oxygen-generating biomaterial to support elevated cellular function and efficacy of macroencapsulation devices for the treatment of type 1 diabetes. Under extreme hypoxic conditions, devices supplemented with OxySite exhibited substantially elevated beta cell and islet viability and function. Furthermore, the inclusion of OxySite within implanted macrodevices resulted in the significant improvement of graft efficacy and insulin production in a diabetic rodent model. Translating to human islets at elevated loading densities further validated the advantages of this material. Establishing this simple biomaterial-based approach for the delivery of a localized and controllable oxygen supply provides a broad and impactful enabling technology for improving the therapeutic efficacy of cell-based approaches.