Alpha-1 antitrypsin (AAT) has protective functions in animal islet transplantation models. While the therapeutic effect of AAT therapy is currently being tested in clinical trials, we investigated the mechanism of AAT protection in a clinically relevant marginal intrahepatic human islet transplantation model. In recipients receiving islets and AAT, 68.9% (20/29) reached normoglycemia, compared to 35.7% (10/28) in those receiving islets only, at 60days posttransplant (PT). AAT-treated mice had lower serum levels of inflammatory cytokines immediately PT. Reduced M1 macrophages were observed in livers of AAT-treated recipients compared to controls as evidenced by flow cytometry and RNA-seq transcriptional profiling analysis. In vitro AAT suppressed IFN-γ-induced M1 macrophage activation/polarization via suppression of STAT1 phosphorylation and iNOS production. AAT inhibits macrophage activation induced by cytokines or dying islets, and consequently leads to islet cell survival. In a macrophage depletion mouse model, the presence of M1 macrophages in the liver contributed to graft death. AAT, through suppressing macrophage activation, protected transplanted islets from death and dysfunction in the human islet and NOD-SCID mouse model. The protective effect of AAT was confirmed in a major mismatch allogeneic islet transplantation model. Taken together, AAT suppresses liver macrophage activation that contributes to graft survival after transplantation.