Effective long-term treatment of the approximately 1 million type 1 diabetics in the US demands some significant advances in the treatments available. Microencapsulation of islets represents a promising treatment of the disease but several technological challenges remain before the method can be used for the treatment of human patients. The islet extraction technology has advanced to where high extraction efficiency has been obtained with good islet viability and function. The encapsulation process developed over the past decade has enabled one pancreatectomized dog with a transplant of encapsulated islet to remain euglycemic for several years without exogenous insulin. Further research and development on the process would benefit significantly from diagnostics that could provide rapid qualitative and quantitative information on the characteristics of the encapsulation. In addition, a means for rapidly identifying and separating out blank capsules and other extraneous material would serve to eliminate the potential problems associated with the procedure. The present work describes light scattering and imaging optical diagnostics for characterizing the capsules and providing information to separate out the undesirable material. Because of the large number of encapsulated islets required for large animal transplantation, the method must be able to perform the analyses at a high rate.