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Cell encapsulation represents a promising therapeutic strategy for many hormone-deficient diseases such as type 1 diabetes (T1D). However, adequate oxygenation of the encapsulated cells remains a challenge, especially in the poorly oxygenated subcutaneous site. Here, we present an encapsulation system that generates oxygen (O2) for the cells from their own waste product, carbon dioxide (CO2), in a self-regulated (i.e., “inverse breathing”) way. We leveraged a gas-solid (CO2–lithium peroxide) reaction that was completely separated from the aqueous cellular environment by a gas permeable membrane. O2 measurements and imaging validated CO2-responsive O2 release, which improved cell survival in hypoxic conditions. Simulation-guided optimization yielded a device that restored normoglycemia of immunocompetent diabetic mice for over 3 months. Furthermore, functional islets were observed in scaled-up device implants in minipigs retrieved after 2 months. This inverse breathing device provides a potential system to support long-term cell function in the clinically attractive subcutaneous site.