Cell encapsulation has been proposed for the treatment of a wide variety of diseases since it allows for transplantation of cells in the absence of undesired immunosuppression. The technology has been proposed to be a solution for the treatment of diabetes since it potentially allows a mandatory minute-to-minute regulation of glucose levels without side-effects. Encapsulation is based on the principle that transplanted tissue is protected for the host immune system by a semipermeable capsule. Many different concepts of capsules have been tested. During the past two decades three major approaches of encapsulation have been studied. These include (i) intravascular macrocapsules, which are anastomosed to the vascular system as AV shunt, (ii) extravascular macrocapsules, which are mostly diffusion chambers transplanted at different sites and (iii) extravascular microcapsules transplanted in the peritoneal cavity. The advantages and pitfalls of the three approaches are discussed and compared in view of applicability in clinical islet transplantation.