Previous evidence has suggested ER stress is important in cytokine-mediated β-cell apoptosis and is implicated in autoimmune-mediated β-cell destruction. We therefore sought to explore the effect of inhibition of ER stress as a means of cytoprotection in an allogeneic model of islet transplantation. Enhancing ER chaperone capacity such as glucose-regulated protein 78 (GRP78) was found to improve β-cell function in the presence of prolonged hyperglycemia. Bax inhibitor 1 (BI-1) was also found to be a novel modulator of the the unfolded protein response. Applying cell penetrating peptide technologies, we made Tat-GRP78 and Tat-BI-1 constructs and tested their ability to protect islets from various forms of oxidative damage. Tat-GRP78 and Tat-BI-1 were successfully delivered to INS-1 cells and islets, and the intracellular activities of Tat-GRP78 and Tat-BI-1 increased in line with the amount of protein delivered. These agents inhibited cellular damage and apoptotic signaling caused by different types of injuries. Overexpressing the GRP78 and BI-1 partially rescued high glucose-induced suppression of insulin expression and improved glucose-stimulated insulin secretion with relief of the ER stress. We also used islets pretreated with Tat-BI-1 or Tat-GRP78 for transplantation with or without in vivo Tat-fusion protein treatment. Multiple intraperitoneal injections of Tat-GRP78 or Tat-BI-1 decrease insulitis and improve glucose metabolism in NOD mice and increase glucose tolerance in OLETF rats. Both ex vivo and in vivo treatment prolonged islet graft survival after syngeneic islet transplantation, with a higher preservation of the engrafted endocrine tissue and reduced inflammation. Importantly, a longer delay in the allograft rejection after transplantation of Tat-GRP78 transduced islets was achieved when mice were also treated in vivo. Our findings emphasize the contribution of ER stress in the allograft rejection process and we propose a readily available, potential therapeutic agent that may temper this process.