Islet transplantation represents a viable treatment for type 1 diabetes. However, due to loss of substantial mass of islets early after transplantation, islets from two or more donors are required to achieve insulin independence. Islet-extracellular matrix disengagement, which occurs during islet isolation process, leads to subsequent islet cell apoptosis and is an important contributing factor to early islet loss. In this study, we developed a fibroblast populated collagen matrix (FPCM) as a novel scaffold to improve islet cell viability and function post-transplantation. FPCM was developed by embedding fibroblasts within type-I collagen and used as scaffold for islet grafts. Viability and insulin secretory function of islets embedded within FPCM was evaluated in vitro and in a syngeneic murine islet transplantation model. Islets embedded within acellular matrix or naked islets were used as control. Islet cell survival and function was markedly improved particularly after embedding within FPCM. The composite scaffold significantly promoted islet isograft survival and reduced the critical islet mass required for diabetes reversal by half (from 200 to 100 islets per recipient). Fibroblast embedded within FPCM produced fibronectin and growth factors and induced islet cell proliferation. No evidence of fibroblast over-growth within composite grafts was noticed. These results confirm that FPCM significantly promotes islet viability and functionality, enhances engraftment of islet grafts and decreases the critical islet mass needed to reverse hyperglycemia. This promising finding offers a new approach to reducing the number of islet donors per recipient and improving islet transplant outcome. J. Cell. Physiol. 226: 1813–1819, 2011. © 2010 Wiley-Liss, Inc.