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Islet transplantation is a promising approach to enable type 1 diabetic patients to attain glycemic control independent of insulin injections. However, up to 60% of islets are lost immediately following transplantation. To improve this outcome, islets can be transplanted within bioscaffolds, however, synthetic bioscaffolds induce an intense inflammatory reaction which can have detrimental effects on islet function and survival. In the present study, we first improved the biocompatibility of polydimethylsiloxane (PDMS) bioscaffolds by coating them with collagen. To reduce the inflammatory response to PDMS bioscaffolds, we then enriched the bioscaffolds with dexamethasone-loaded microplates (DEX-μScaffolds). These DEX-microplates have the ability to release DEX in a sustained manner over 7 weeks within a therapeutic range that does not affect the glucose responsiveness of the islets but which minimizes inflammation in the surrounding microenvironment. The bioscaffold showed excellent mechanical properties that enabled it to resist pore collapse thereby helping to facilitate islet seeding and its handling for implantation, and subsequent engraftment, within the epididymal fat pad (EFP). Following the transplantation of islets into the EFP of diabetic mice using DEX-μScaffolds there was a return in basal blood glucose to normal values by day 4, with normoglycemia maintained for 30 d. Furthermore, these animals demonstrated a normal dynamic response to glucose challenges with histological evidence showing reduced pro-inflammatory cytokines and fibrotic tissue surrounding DEX-μScaffolds at the transplantation site. In contrast, diabetic animals transplanted with either islets alone or islets in bioscaffolds without DEX microplates were not able to regain glycemic control during basal conditions with overall poor islet function. Taken together, our data show that coating PDMS bioscaffolds with collagen, and enriching them with DEX-microplates, significantly prolongs and enhances islet function and survival.