Of many obstacles involved in developing a bioartificial pancreas, which consists of encapsulated and physically immunoprotected islets, for long-term implantation in insulin-dependent diabetic patients, the impaired functionality and decreasing viability of encapsulated islets over time are critical factors in determining the size and longevity of the implant. These factors are closely associated with short oxygen supply to the encaged islets from the implant site. To facilitate oxygen transport to islets in the capsules, we coencapsulated hemoglobin cross-linked with difunctional polyethylene glycol (Hb-conjugate, Hb-C) which is large in size (>100 kDa), thus preventing diffusional loss through the immunoprotecting membrane. The coencapsulation of Hb-C with islets in alginate-poly-L-lysine microcapsules by dissolving Hb-C in an islet-suspended alginate solution at a concentration of 0.25 mM improved the insulin secretion and viability of the islets. At week 0, the islets, coencapsulated with Hb-C, cultured at P(O2) = 40 mmHg (assumed oxygen partial pressure in the most common implant site, the peritoneal cavity), secreted 200% more insulin compared with the control islets without Hb-C at glucose concentrations of both 100 and 300 mg/dL. The Hb-C effect became more significant with time at higher glucose concentrations. After culturing the islets for 8 weeks at 40 mmHg, the insulin secretion was enhanced 200 and 550% at glucose concentrations of 100 and 300 mg/dL as compared with the control, respectively. The results were closely associated with improved viability and suggest that the introduction of Hb-C is an effective approach to maintaining the oxygen supply to encapsulated islets. In addition, Hb-C coencapsulation with pancreatic islets may (1) provide a partial clue to reducing the large size of the biohybrid artificial pancreas, (2) lead to a reduced need for pancreas donation, and (3) prolong the longevity of the biohybrid artificial pancreas in the body.