Human mesenchymal stem cells (MSC) are promising candidates for cell therapy of neurological diseases. However, co-transplantation of MSC with tumour cell lines has been reported to promote tumour growth. In this study, we co-transplant glioma cells together with alginate-encapsulated MSC. Immunocompetent BD-IX rats were inoculated with syngeneic BT4Ca glioma cells. Encapsulated unmodified MSC, endostatin producing (endoMSC) or cell-free alginate capsules were stereotactically implanted into the tumour bed. After 12 days, tumour volumes were significantly diminished in the MSC-treated group. The decrease in tumour volume found with endoMSC was statistically not significant, despite significantly reduced tumour vascularization. We conclude that, under syngeneic conditions in the immunocompetent animal, (1) the intracranial, orthotopic co-transplantation of MSC with glioma cells leads to a suppression in tumour growth and (2) the tumour can escape the antiangiogenic treatment with endostatin. Our finding may facilitate the clinical translation of encapsulated cell therapy.