Diabetes is a leading cause of death worldwide, with over half a billion adults living with the condition in 2021. Although there is no cure for either type I or type II diabetes, there are various ongoing studies exploring different solutions to improve patients' quality of life. One possible solution is to develop a system that mimics the natural functions of pancreatic beta cells, including insulin secretion. An artificial pancreas, beta cell renewal or preservation and islet cell transplantation are key steps in developing such a system. Islet transplantation has seen recent advancements in finding new transplantation sites, protecting the islets from autoimmune attack, increasing the supply of islets and finding new sources of islets. Islet transplantation for diabetes treatment is limited by complications like hypoxia. To address this, researchers are exploring biocompatible engineered cell-based transplantation using hydrogels as a multi-component encapsulation system. Hydrogels resemble the extra-cellular matrix and can be made from naturally derived or synthetic polymers. However, pericapsular fibrotic overgrowth remains a limitation. Bioprinting of biodegradable hydrogels can address this challenge by enabling control over porosity and pore size to enhance islet function and prolong graft survival. In-depth research is required to improve the scaffold oxygen transport capacity and develop scaffolds using naturally occurring ECM-derived polysaccharides and proteins.