The diverse requirements for a successful islet encapsulation barrier suggest the benefit of a barrier system that presents differing functionalities to encapsulated cells and host cells. Initially, multifunctional hydrogels were synthesized via the sequential photopolymerization of PEG hydrogel layers, each with different isolated functionalities. The ability to achieve localized biological functionalities was confirmed by immunostaining of different entrapped antibodies within each hydrogel layer. Survival of murine islets macroencapsulated within the interior gel of two-layer hydrogel constructs was then assessed. Maintenance of encapsulated islet survival and function was observed within multilayer hydrogels over 28 days in culture. Additionally, the functionalization of the islet-containing interior PEG gel layer with cell-matrix moieties, with either 100 μg/ml laminin or 5 mM of the adhesive peptide IKVAV found in laminin, resulted in increased insulin secretion from encapsulated islets similar to that in gels without an exterior hydrogel layer. Finally, through cell seeding experiments, the ability of an unmodified, exterior PEG layer to prevent interactions, and thus attachment, between nonencapsulated fibroblasts and entrapped ECM components within the interior PEG layer was demonstrated. Together the presented results support the potential of multilayer hydrogels for use as multifunctional islet encapsulation barriers that provide a localized biologically active islet microenvironment, while presenting an inert, immunoprotective exterior surface to the host environment, to minimize graft-host interactions.