Porcine islets represent an alternative source of insulin-producing tissue, however, porcine endogenous retrovirus (PERV) remains a concern. In this study, SCID mice were transplanted with nonencapsulated (non-EC), microencapsulated (EC) or macroencapsulated (in a TheraCyte™ device) neonatal porcine islets (NPIs), and peripheral tissues were screened for presence of viral DNA and mRNA. To understand the role of an intact immune system in PERV incidence, mice with established NPI grafts were reconstituted with splenocytes. Peripheral tissues were screened for PERV and porcine DNA using PCR. Tissues with positive DNA were analyzed for PERV mRNA using RT-PCR. No significant difference was observed between non-EC and EC transplants regarding presence of PERV or porcine-specific DNA or mRNA. In reconstituted animals, little PERV or porcine DNA, and no PERV mRNA was detected. No PERV or porcine-specific DNA was observed in animals implanted with a TheraCyte™ device. In conclusion, an intact immune system significantly lowered the presence of PERV. Microencapsulation of islets did not alter PERV presence, however, macroencapsulation in the TheraCyte™ device did. Lower PERV incidence coincided with lower porcine DNA in peripheral tissues, linking the presence of PERV to migration of porcine cells.