This study evaluated the potential of vascularized small intestinal segments for pancreatic islet transplantation. Islets isolated from Lewis rats were transplanted into diabetic syngeneic recipients. Segments of small intestine were prepared by denudation of the mucosal layer prior to implantation of pancreatic islets into the segments. Animal groups were established to determine engraftment, survival and function of islets transplanted into either intestinal segments or portal vein over up to 60 days. We found transplantation of functionally intact pancreatic islets into small intestinal segments was well tolerated. Transplanted islets were rapidly engrafted in intestinal segments as demonstrated vascularization and expression of insulin and glucagon throughout the 60-day duration of the studies. Transplantation of islets restored euglycemia in diabetic rats, which was similar to animals receiving islets intraportally. Moreover, animals treated with islet transplants showed normal responses to glucose challenges. Removal of graft-bearing intestinal segments led to recurrence of hyperglycemia indicating that transplanted islets were responsible for improved outcomes. Therefore, we concluded that vascularized intestinal segments supported reorganization, survival and function of transplanted islets with therapeutic efficacy in streptozotocin-treated diabetic rats. The approach described here will be appropriate for studying islet biogenesis, reorganization and function, including for cell therapy applications.