Aims/hypothesis The success of islet transplantation as a treatment for type 1 diabetes is currently hampered by post-transplantation loss of functional islets through adverse immune and non-immune reactions. We aimed to test whether early islet loss can be limited and transplant survival improved by the application of conformal nano-coating layers to islets. Methods Our novel coating protocol used alternate layers of phosphorylcholine-derived polysaccharides (chitosan or chondroitin-4-sulphate) and alginate as coating materials, with the binding based on electrostatic complexation. The in vitro function of encapsulated mouse islets was studied by analysing islet secretory function and cell viability. The in vivo function was evaluated using syngeneic and allogeneic transplantation in the streptozotocin-induced mouse model of diabetes. Results Nano-scale encapsulated islets retained appropriate islet secretory function in vitro and were less susceptible to complement-and cytokine-induced apoptosis than nonencapsulated control islets. In in vivo experiments using a syngeneic mouse transplantation model, no deleterious responses to the coatings were observed in host animals, and the encapsulated islet grafts were effective in reversing hyperglycaemia. Allo-transplantation of the nano-coated islets resulted in preserved islet function post-implantation in five of seven mice throughout the 1 month monitoring period. Conclusions/interpretation Nano-scale encapsulation offers localised immune protection for implanted islets, and may be able to limit early allograft loss and extend survival of transplanted islets. This versatile coating scheme has the potential to be integrated with tolerance induction mechanisms, thereby achieving long-term success in islet transplantation.