Type 1 diabetes (T1D) is an autoimmune disease of insulin-producing β-cells. Islet transplantation is a promising treatment for T1D, but long-term graft viability and function remain challenging. Oxidative stress plays a key role in the activation of alloreactive and autoreactive immunity toward the engrafted islets. Therefore, targeting these pathways by encapsulating islets with an antioxidant may delay immune-mediated rejection. Utilizing a layer-by-layer approach, we generated nanothin encapsulation materials containing tannic acid (TA), a polyphenolic compound with redox scavenging and anti-inflammatory effects, and poly(N-vinylpyrrolidone) (PVPON), a biocompatible polymer. We hypothesize that transplantation of PVPON/TA-encapsulated allogeneic C57BL/6 islets into diabetic NOD mice will prolong graft function and elicit localized immunosuppression. In the absence of systemic immunosuppression, diabetic recipients containing PVPON/TA-encapsulated islets maintained euglycemia and delayed graft rejection significantly longer than those receiving nonencapsulated islets. Transplantation of PVPON/TA-encapsulated islets was immunomodulatory because gene expression and flow cytometric analysis revealed significantly decreased immune cell infiltration, synthesis of reactive oxygen species, inflammatory chemokines, cytokines, CD8 T-cell effector responses, and concomitant increases in alternatively activated M2 macrophage and dendritic cell phenotypes. Our results provide evidence that reducing oxidative stress following allotransplantation of PVPON/TA-encapsulated islets can elicit localized immunosuppression and potentially delay graft destruction in future human islet transplantation studies.