As many as 2000 IEQs (islet equivalent) of encapsulated human islets are required to normalize glucose levels in diabetic mice. To reduce this number, encapsulated islets were exposed to 100 μM desferrioxamine (DFO) prior to transplantation. Cell viability, glucose-induced insulin secretion, VEGF (Vascular endothelial growth factor), HIF-1α (Hypoxia inducible factor-1 alpha), caspase-3 and caspase-8 levels were assessed after exposure to DFO for 12, 24 or 72 h. Subsequently, 1000, 750 or 500 encapsulated IEQs were infused into peritoneal cavity of diabetic mice after 24 h exposure to DFO. Neither viability nor function in vitro was affected by DFO, and levels of caspase-3 and caspase-8 were unchanged. DFO significantly enhanced VEGF secretion by 1.6-and 2.5-fold at 24 and 72 h, respectively, with a concomitant increase in HIF-1α levels. Euglycemia was achieved in 100% mice receiving 1000 preconditioned IEQs, as compared to only 36% receiving unconditioned IEQs (p < 0.001). Similarly, with 750 IEQ, euglycemia was achieved in 50% mice receiving preconditioned islets as compared to 10% receiving unconditioned islets (p = 0.049). Mice receiving preconditioned islets had lower glucose levels than those receiving unconditioned islets. In summary, DFO treatment enhances HIF-1α and VEGF expression in encapsulated human islets and improves their ability to function when transplanted.