Despite encouraging results in animal models, the transplantation of microencapsulated islets into humans has not yet reached the therapeutic level. Recent clinical trials using microencapsulated human islets in barium alginate showed the presence of dense fibrotic overgrowth around the microcapsules with no viable islets. The major reason for this is limited understanding of what occurs when encapsulated human islets are allografted. This warrants the need for a suitable small animal model. In this study, we investigated the usefulness of NOD/SCID mice reconstituted with human PBMCs (called humanized NOD/SCID mice) as a preclinical model. In this model, human T cell engraftment could be achieved, and CD45+ cells were observed in the spleen and peripheral blood. Though the engrafted T cells caused a small fibrotic overgrowth around the microencapsulated human islets, this failed to stop the encapsulated islets from functioning in the diabetic recipient mice. The ability of encapsulated islets to survive in this mouse model might partly be attributed to the presence of Th2 cytokines IL-4 and IL-10, which are known to induce graft tolerance. In conclusion, this study showed that the hu-NOD/SCID mouse is not a suitable preclinical model to study the allograft rejection mechanisms of encapsulated human islets. As another result, the maintained viability of transplanted islets on the NOD/SCID background emphasized a critical role of protective mechanisms in autoimmune diabetes transplanted subjects due to specific immunoregulatory effects provided by IL-4 and IL-10.