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Pancreatic islet transplantation (PIT) represents a potential therapy to circumvent the need for exogenous insulin in type 1 diabetes. However, PIT remains limited by lack of donor islets and the need for long-term multidrug immunosuppression to prevent alloimmune islet rejection. Our goal was to evaluate a local immunoregulatory strategy that sustains islet allograft survival and restores glucose homeostasis in the absence of systemic immunosuppression. Nanogram quantities of murine CTLA4/Fc fusion protein were controllably delivered within human acellular dermal matrix scaffolds using an inkjet-based biopatterning technology and cotransplanted with allogeneic islets under the renal capsule to create an immunoregulatory microenvironment around the islet allograft. We achieved long-term engraftment of small loads of allogeneic islet cells with 40% of MHC-mismatched mouse recipients maintaining sustained normoglycemia following pancreatic β-cell ablation by streptozotocin. Biopatterned CTLA4/Fc local therapy was associated with expansion of Foxp3 regulatory T cells and shifts in cytokine production and gene expression from proinflammatory to regulatory profiles, thus substantially benefiting islet allografts survival and function. This study is a new paradigm for targeted therapies in PIT that demonstrates the favorable effects of immune alterations in the transplant milieu and suggests a unique strategy for minimizing systemic immunosuppression and promoting islet allograft survival.