Hypoxia contributes to encapsulated pancreatic islet graft failure. To gain insight into the mechanisms that lead to hypoxia-induced graft failure, encapsulated islet function, vitality, and cell replication were assessed after 2 and 5 days of hypoxic (1% O₂) and normoxic (20% O₂) culture. The mRNA expression levels of Bcl-2, Bax, inducible nitric oxide synthase (iNOS), and monocyte chemoattractant protein 1 (MCP-1) were assessed, as well as the amount of nitrite and MCP-1 in the culture medium. Hypoxia was associated with loss of encapsulated islet function and vitality, but not with an increase in islet cell replication. Loss of vitality was due to necrosis, and only modestly due to apoptosis. Hypoxia was not associated with changes in the Bcl-2/Bax mRNA ratio, but it did increase the expression of iNOS and MCP-1 mRNA. The increased mRNA levels were, however, not associated with elevated concentrations of nitrite nor with elevated levels of MCP-1 protein. The increased iNOS mRNA levels imply a role for NO in the completion of cell death by hypoxia. The increased MCP-1 mRNA levels suggest that encapsulated islets in vivo contribute to their own graft failure by attracting cytokine-producing macrophages. The discrepancy between iNOS mRNA and nitrite is explained by the longer half-life of NO during hypoxia. MCP-1 protein levels are underestimated as a consequence of the lower number of vital cells in combination with a higher proteolytic activity due to necrosis. Thus, strategies to eliminate hypoxia may not only improve islet function and vitality, but may also reduce the attraction of macrophages by encapsulated islets.