Transplantation of islet cells into diabetic patients is a promising therapy, provided that the islet cells are able to evade host immune rejection. With improved islet viability, this strategy may effectively reverse diabetes. We applied 2% calcium alginate to generate small and large capsules to encapsulate porcine neonatal pancreatic cell clusters (NPCCs) using an air-driven encapsulator. After encapsulation, the viability was assessed at 1, 4, 7, 14 and 28 days and secretion of functional insulin in response to glucose stimulation were tested at days 14 and 28. Selective permeability of the small alginate capsules was confirmed using various sizes of isothiocyanate-labeled dextran (FITC-dextran). Encapsulation of NPCCs was performed without islet protrusion in the small and large capsules. The viability of NPCCs in all experimental groups was greater than 90% at day 1 and then gradually decreased after day 7. The NPCCs encapsulated in large capsules showed significantly lower viability (79.50 ± 2.88%) than that of naïve NPCCs and NPCCs in small capsule (86.83 ± 2.32%, 87.67 ± 2.07%, respectively) at day 7. The viability of naïve NPCCs decreased rapidly at day 14 (75.67 ± 1.75%), whereas the NPCCs encapsulated in small capsules maintained (82.0 ± 2.19%). After 14 and 28 days NPCCs' function in small capsules (2.67 ± 0.09 and 2.13 ± 0.09) was conserved better compared to that of naïve NPCCs (2.04 ± 0.25 and 1.53 ± 0.32, respectively) and NPCCs in large capsules (2.04 ± 0.34 and 1.13 ± 0.10, respectively), as assessed by a stimulation index. The small capsules also demonstrated selective permeability. With this encapsulation technique, small capsules improved the viability and insulin secretion of NPCCs without islet protrusion.