Mouse L929 fibroblasts transfected to express a secreted form of human alkaline phosphatase (SEAP) were encapsulated in approximately 400-microm poly(hydroxyethyl methacrylate-co-methyl methacrylate) (HEMA-MMA) microcapsules as a baseline for the use of genetically engineered cells in encapsulation therapy. Although incubation of microcapsules with serum-containing medium resulted in maintaining the number of live encapsulated cells with the passage of time, incubation in a serum-free medium resulted in a three-fold proliferation of the encapsulated cells within a 3-week observation period. Similar to the results for incubation with serum-containing medium, co-encapsulation with a bovine dermal type I collagen, i.e., the inclusion of a matrix in the core of the capsules, resulted in maintenance of the initial number of live cells with the passage of time. SEAP measurements indicated that the transfected cells not only continued to express the transgene product after encapsulation, but also adapted to the capsule microenvironment to secrete SEAP at progressively larger amounts with the passage of time. However, SEAP expression only occurred when the transfected cells (encapsulated or non-encapsulated) were cultivated in serum-containing medium.