Allogenic islet transplantation is an effective therapy for type 1 diabetes in the clinic. Sustained graft survival requires chronic immunosuppression that has adverse effects. Islet graft rejection is initiated and perpetuated by T effector cells (Teffs). Teffs upregulate Fas death receptor on their surface and undergo apoptosis following engagement with FasL. Therefore, FasL has the potential as an immunomodulator to establish immune tolerance to islet grafts by eliminate alloreactive Teffs. This study used PEG microgels engineered with a novel form of FasL, SA-FasL, for the prevention of allogeneic islet graft rejection. Poly(ethylene glycol) microgels were produced with biotin on their surface. Biotinylated microgels were engineered with SA-FasL (1 μg/103 microgels) by taking advantage of the high affinity interaction between biotin and the streptavidin (SA) domain of the molecule. SA-FasL-PEGs induced apoptosis in Fas expressing A20 lymphoid cells in vitro. Co-transplantation of SA-FasL-PEGs with naïve islets led to prolonged survival of grafts as compared with the control group (islets + unmodified PEGs), with 20% surviving for a 200-day observation period. A short (15 days) treatment with low dose rapamycin further improved the immunomodulatory efficacy of SA-FasL-PEGs, with > 90% of grafts surviving for a 200-day observation period. CD4+CD25+FoxP3+ Tregs were required for graft survival, as depletion of this cell population on day 50 post-transplantation resulted in prompt rejection. These findings provide strong proof-of-efficacy and feasibility for the use of SA-FasL-engineered microgels as an off-the-shelf product for the modulation of alloreactive responses with significant therapeutic potential.