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Human amniotic epithelial cells (hAECc) derived from placental tissue are widely available and possess immunomodulatory, anti-inflammatory and regenerative properties. In this study we have generated islet heterospheroids composed of hAECs and dispersed islet cells (ICs) aiming to improve viability, engraftment and vascularization of the transplanted spheroids.Functional Islet spheroids were generated on 3D agarose-patterned microwells. To form homospheroids dispersed rat islet cells (ICs) and hAECs (128,000 cells/mold and 500cell/spheroid) were seeded alone. Heterospheroids were formed by mixing ICs and hAECs at ratio of 1:1 (128,000 cells/mold and 500cell/spheroid). Marginal mass (150 IEQ) of islet heterospheroids (islet + AEC group), islet homospheroids (islet-only group) or hAEC spheroids (hAEC alone group) was transplanted under the kidney capsule of diabetic SCID mice. Blood glucose levels were monitored daily and IPGTTs were carried out. Grafts and serum were harvested at 1, 2, 6 and 12 weeks after transplantation to assess outcome.Mice transplanted with islet heterospheroids exhibited enhanced glycemic control as measured by glucose tolerance, serum insulin/c-peptide level and diabetes reversal rate, compared with mice in islet alone group. The cumulative percentage of animals reaching normoglycemia was 74% in the islet+hAEC group versus 26% in the islets-alone group. The median time to reverse hyperglycaemia for islet+hAEC grafts was 5 ± 0.9 days and 30 ± 7 days for islet-alone recipients (p < 0.0001, n = 26). Between groups, the morphology of islet grafts showed significant differences in size and composition of grafted endocrine tissues. A two-fold increase in graft revascularization was seen in islet + hAEC grafts, which was mainly attributed to stimulating vascular endothelial growth factor-A (VEGF-A) production. The rapid revascularization led to improved graft perfusion and recovery from hypoxia.These data indicate that hAECs may have a significant potential to protect islet cells and may be employed to improve islet cell survival and function prior to transplantation. Hence, hAEC-enriched pseudoislets may represent a novel approach to increase the success rate of islet transplantation.