Background: Multipotent mesenchymal stromal cells (MSC) enhance viability and function of islets of Langerhans. We aimed to examine the interactions between human MSC and human islets of Langerhans that influence the function of islets. Methods: Human MSC and human islets (or pseudoislets, obtained after digestion and reaggregation of islet cells) were cocultured with or without cellular contact and glucose-stimulated insulin secretion assays were performed to assess cell function. The expression of several adhesion molecules, notably ICAM-1 and N-cadherin on islets and MSC, was investigated by qPCR. The role of N-cadherin was analyzed by adding an anti-N-cadherin antibody in islets cultured with or without MSC for 24 h followed by insulin measurements in static incubation assays. Islets and MSC were coencapsulated in new hydrogel microspheres composed of calcium alginate and covalently crosslinked polyethylene glycol. Encapsulated cells were transplanted intraperitoneally in streptozotocin-induced diabetic mice and glycemia was monitored. Islet function was evaluated by the intraperitoneal glucose tolerance test. Results: In vitro, free islets and pseudoislets cocultured in contact with MSC showed a significantly increased insulin secretion when compared to islets or pseudoislets cultured alone or cocultured without cell-to-cell contact with MSC (p < 0.05). The expression of ICAM-1 and N-cadherin was present on islets and MSC. Blocking N-cadherin prevented the enhanced insulin secretion by islets cultured in contact with MSC whereas it did not affect insulin secretion by islets cultured alone. Upon transplantation in diabetic mice, islets microencapsulated together with MSC showed significantly prolonged normoglycemia when compared with islets alone (median 69 and 39 days,respectively, p < 0.01). The intraperitoneal glucose tolerance test revealed an improved glycemic response in mice treated with islets microencapsulated together with MSC compared to mice transplanted with islets alone (p < 0.001). Conclusions: MSC improve survival and function of islets of Lan gerhans by cell-to-cell contact mediated by the adhesion molecule N-cadherin.