Alginate (Alg)-encapsulated porcine islet cell grafts are developed to overcome limitations of human islet transplantation. They can generate functional implants in animals when prepared from fetal, perinatal, and adult pancreases. Implants have not yet been examined for efficacy to establish sustained, metabolically adequate functional β-cell mass (FBM) in comparison with human islet cells. This study in immune-compromised mice demonstrates that subcutaneous implants of Alg-encapsulated porcine prenatal islet cells with 4 × 105 β-cells form, over 10 weeks, a FBM that results in glucose-induced plasma C-peptide >2 ng/mL and metabolic control over the following 10 weeks, with higher efficiency than nonencapsulated, while failing in peritoneum. This intracapsular FBM formation involves β-cell replication, increasing number fourfold, and maturation toward human adult β-cells. Subcutaneous Alg-encapsulated human islet cells with similar β-cell number establish implants with plasma C-peptide >2 ng/mL for the first 10 weeks, with nonencapsulated cells failing; their β-cells do not replicate but progressively die (>70%), explaining C-peptide decline and insufficient metabolic control. An Alg matrix thus helps establish β-cell functions in subcutis. It allows formation of sustained metabolically adequate FBM by immature porcine β-cells with proliferative activity but not by human adult islet cells. These findings define conditions for evaluating its immune-protecting properties.