Graft function of encapsulated islets is restricted in spite of the fact that inflammatory responses against capsules are limited to a portion less than 10%. It has been shown that dysfunction is accompanied by a gradual decrease in the glucose-induced insulin response (GIIR), a hyperproliferation of islet cells, and gradual necrosis. Also, limited survival is associated with the presence of macrophages in the overgrowth. In the present study, we investigate whether macrophages are the inducers of dysfunction of encapsulated grafts. Four weeks after successful transplantation of microencapsulated rat allografts we determined the GIIR, the rate of islet cell replication, and islet cell death. Also, we quantified the number of macrophages on the overgrown capsules. This assessment was applied to set up an in vitro coculture system of macrophages and encapsulated islets. We retrieved 93 +/- 6.2% of the capsules of which 9.2 +/- 0.3% was overgrown. The GIIR of the retrieved nonovergrown islets was reduced when compared with freshly encapsulated islets. The replication rate of the retrieved islet cells was eightfold higher than in the normal pancreas. Apoptosis was rarely observed but 37 +/- 4% of the total islet surface was composed of necrosis. We found a mean of 1542 +/- 217 macrophages per capsule. Coculture of 1500 NR8383 macrophages per encapsulated islets induced a substantial reduction in GIIR but a decrease instead of increase in replication. Necrosis was restricted to 13 +/- 1.3% of the islet cells and was not increased by the presence of macrophages. Our observations indicate that we should focus on reduction of macrophage activation and on improving the nutrition of encapsulated islets to prevent islet cell death.