Pancreatic islet transplantation is a promising therapeutic advancement in the treatment of type 1 diabetes; however, a major obstacle remains in supporting cell function post-transplant. To identify possible extracellular matrix (ECM) proteins for the functionalization of islet encapsulation devices, we investigated the presence of ECM in native pancreatic tissues and in our EndoC-βH3 pseudo-islet system. We identified the small, leucine-rich proteoglycan decorin to be strongly co-localized with insulin-producing cells. Supplementation of decorin in the pseudo-islet cultures significantly increased the β-cell glucose response while also downregulating the ECM proteins involved in fibrosis. Interestingly, these changes in ECM, as well as changes in phospholipids within the endoplasmic reticulum (ER), were also observed through Raman microspectroscopy. Next-generation sequencing of pseudo-islets supplemented with decorin showed upregulation of genes involved in glycolysis and protein transportation within the ER. Furthermore, functionalization of a clinically approved collagen type 1 gel with decorin significantly increased insulin secretion of embedded pseudo-islets in response to glucose. Immunofluorescence staining and Raman microspectroscopy confirmed that decorin impacts ECM remodeling of pseudo-islets within the functionalized gel. Raman microspectroscopy also showed decorin influences the phospholipid content within the ER, suggesting changes in protein trafficking upon decorin supplementation. Our data proposes decorin as a therapeutic agent that supports β-cell function and improves the efficacy of pancreatic islet transplantation.