Diabetes mellitus (DM) can be cured by adequate insulin secretion from a relatively small volume of cells. Cell encapsulation enables allo- and even xeno-geneic cell therapy without immunosuppression. Micro-encapsulated islets used in recent clinical trials are not fully retrievable after transplantation. This paper summerizes the development of retrievable and theoretically replaceable macro-encapsulated islets using polyvinyl alcohol (PVA) hydrogel. An aqueous solution of PVA becomes a gel through micro crystallization by freezing and thawing. Utilizing this feature, PVA-macro-encapsulated islets (PVA-MEIs) were developed. Rat islets suspended in Euro-Collins solution containing 3% PVA were encapsulated in a mesh-reinforced PVA hydrogel sheet by freezing and thawing. The feasibility of PVA-MEIs for DM therapy was tested in vitro and in vivo. PVA-MEIs showed glucose-responsive insulin secretion in vitro even after 14-day culture. Rat PVA-MEIs cultured in media containing fresh human plasma showed no morphological changes and maintained insulin content. Intra-peritoneal transplantation of PVA-MEIs containing 750 rat islets ameliorated hyperglycemia in streptozotocin (STZ)-induced diabetic mice to nearly normal levels for up to 30 days with a consistent increase in body weight. Transplantation of PVA-MEIs also prevented metabolic and renal disorders in STZ-induced diabetic mice. PVA-MEIs cryo-preserved for 1, 7, and 30 days showed similar function in vitro and corrected hyperglycemia after intra-peritoneal transplantation in STZ-induced diabetic mice. Intra-peritoneal transplantation of PVA-MEIs containing iso- or allo-geneic islets (approx. 2,000 islets) ameliorated hyperglycemia in STZ-induced diabetic rats in a similar manner for almost half a year although the efficacy gradually decreased with time. Transplantation of PVA-MEIs ameliorated hyperglycemia in diabetic mice and rats without immunosupression. Retrievable and theoretically replaceable PVA-MEIs that can secure cell entrapment can mitigate the potential risks associated with xeno-geneic cells and cells made from undifferentiated cells. Therefore, PVA-MEIs are a promising modality for future DM therapy.