Encapsulation of pancreatic islets in alginate-microcapsules is used to reduce or avoid the application of life-long immunosuppression in preventing rejection. Long-term graft function, however, is limited due to varying degrees of host tissue responses against the capsules. Major graft-longevity limiting responses include inflammatory responses provoked by biomaterials and islet-derived danger-associated molecular patterns (DAMPs). This paper reports on a novel strategy for engineering alginate microcapsules presenting immunomodulatory polymer pectin with varying degrees of methyl-esterification (DM) to reduce these host tissue responses. DM18-pectin/alginate microcapsules show a significant decrease of DAMP-induced Toll-Like Receptor-2 mediated immune activation in vitro, and reduce peri-capsular fibrosis in vivo in mice compared to higher DM-pectin/alginate microcapsules and conventional alginate microcapsules. By testing efficacy of DM18-pectin/alginate microcapsules in vivo, we demonstrate that low-DM pectin support long-term survival of xenotransplanted rat islets in diabetic mice. This study provides a novel strategy to attenuate host responses by creating immunomodulatory capsule surfaces that attenuate activation of specific pro-inflammatory immune receptors locally at the transplantation site.