Microencapsulating pancreatic islets in immunoprotective alginate hydrogels is a promising strategy for treatment of type 1 diabetes. However, this strategy is limited by inflammation and hypoxia mediated oxidative stress, due to encapsulation and the hydrogel itself, leading to impaired insulin secretion and limited short and long term cell survival. We report on the anti-oxidant effect of fucoidan, an algae derived polysaccharide, on beta cells, and how it positively affects encapsulated beta cell viability and function. Fucoidan from Fucus vesiculosus (FF) exhibits a high total antioxidant capacity, and free radical scavenging activity, and is able to significantly alleviate intracellular oxidative stress in INS1E beta cells. In addition, FF significantly increases insulin secretion in a dose- and time-dependent manner. When FF is incorporated in ultrapure alginate used for microencapsulation of primary rat islets, both viability and glucose responsiveness of rat islets in these socalled Fucogel microcapsules (Fucocaps) were found to be significantly higher compared to islets encapsulated in alginate alone. Similar results were obtained with INS1E pseudo-islets and neonatal pig islets. Fucocaps can provide a redox-modulatory niche and an immune barrier for islets and beta cells in the same time leading to significantly improved survival and endocrine function by mitigating oxidative stress.