Mesenchymal stem/stromal cells (MSCs) are emerging as a new therapy for diabetes. Here we investigate the properties of MSCs engineered to express Islet Neogenesis Associated Protein (INGAP) previously shown to reverse diabetes in animal models and evaluate their potential for anti-diabetic applications in mice. Mouse bone marrow-derived MSCs retrovirally transduced to co-express INGAP, Firefly Luciferase and EGFP (INGAP-MSCs), were characterized in vitro and implanted intraperitoneally (IP) into non-diabetic and diabetic C57BL/6 mice (Streptozotocin model) and tracked by live bioluminescence imaging (BLI). Distribution and survival of IP injected INGAP-MSCs differed between diabetic and non-diabetic mice, with a rapid clearance of cells in the latter, and a stronger retention (up to 4 weeks) in diabetic mice concurring with homing towards the pancreas. Interestingly, INGAP-MSCs inhibited the progression of hyperglycemia starting at day 3 and lasting for the entire 6 weeks of the study. Pursuing greater retention, we investigated the survival of INGAP-MSCs in hydrogel matrices. When mixed with Matrigel™ and injected subcutaneously into non-diabetic mice, INGAP-MSCs remained in the implant up to 16 weeks. In vitro tests in three matrices (Matrigel™, Type I Collagen and VitroGel®-MSC) demonstrated that INGAP-MSCs survive and secrete INGAP, with best results at the density of 1-2 x 106 cells/mL. However, all matrices induced spontaneous adipogenic differentiation of INGAP-MSCs in vitro and in vivo, which requires further investigation of its potential impact on MSC therapeutic properties. In summary, based on their ability to stop the rise in hyperglycemia in STZ-treated mice, INGAP-MSCs are a promising therapeutic tool against diabetes but require further research to improve cell delivery and survival.