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Transplantation of immunoisolated islets of Langerhans has been proposed as a promising approach to treating insulin-dependent diabetes mellitus. Recently, a cell delivery system based on a multicomponent microcapsule has been designed for the immunoisolation of insulin-secreting pancreatic islets. The capsule, formed by polyelectrolyte complexation of sodium alginate and cellulose sulfate with poly(methylene-co-guanidine), markedly has improved mechanical strength compared with the widely used alginate/poly(L-lysine) capsules. It also provides a flexibility for readily adjusting membrane thickness and capsule size, and, more important, the membrane permeability can be altered over a wide range of molecular sizes. To rigorously test the capsule diffusion properties, we have improved capsule permeability measurement by using two complementary methods: (1) size exclusion chromatography with dextran standards; and (2) newly developed methodology for assessing permeability to a series of biologically relevant proteins. Viability and function of rat pancreatic islets enclosed in the capsules with different permeability were tested in vitro. The insulin secretion of encapsulated islets was well preserved even though slightly delayed in comparison with a control group of free islets. We believe that the unique features of this encapsulation system together with the precise characterization of its physical parameters will enable us to find the optimal range of capsule permeability for in vitro and in vivo survival and function of encapsulated pancreatic islets.