Two positively charged derivatives of poly(ethylene glycol) (PEG) were coated onto alginate-poly(L-lysine)-alginate (A-P-A) microcapsules by allowing them to interact them with the negatively charged alginate on the capsule surface. The polymers are methoxypolyoxyethylene amine (PEGA1) and polyoxyethylene bis(amine) (PEGA2), which contain charged amine groups at one or both ends, respectively, with PEG as the backbone. The coating of the microcapsules with PEG-amine resulted in a much smoother capsule surface than A-P-A microcapsule surfaces as examined under a scanning electron microscope. The diffusivity of bovine serum albumin into the microcapsules remained the same after PEGA1 coating. But the diffusivity decreased to less than one-fifth that in A-P-A microcapsules coated with PEGA2. The biocompatibility of the microcapsules also improved as investigated by an in vivo study. Microcapsules were implanted in the peritoneal cavity of BALB/c mice and retrieved 120 d after implantation. The fibrotic action against A-P-A microcapsules was severe and the capsules retrieved by peritoneal lavage aggregated into clusters. In contrast, the surface-modified capsules were free-flowing and free of cell overgrowth. Secretion of insulin from rat islets within A-P-A-PEGA microcapsules responded well to changes in glucose concentration in a static glucose test. Intraperitoneal transplantation of the microencapsulated islets into streptozotocin-induced diabetic mice could maintain normal blood glucose levels in test animals for up to 200 d without immunosuppression.