Entrapment of mammalian cells in physical membranes has been practiced since the early 1950s when it was originally introduced as a basic research tool. The method has since been developed based on the promise of its therapeutic usefulness in tissue transplantation. Encapsulation physically isolates a cell mass from an outside environment and aims to maintain normal cellular physiology within a desired permeability barrier. Numerous encapsulation techniques have been developed over the years. These techniques are generally classified as microencapsulation (involving small spherical vehicles and conformally coated tissues) and macroencapsulation (involving larger flat-sheet and hollow-fiber membranes). This review is intended to summarize techniques of cell encapsulation as well as methods for evaluating the performance of encapsulated cells. The techniques reviewed include microencapsulation with polyelectrolyte complexation emphasizing alginate-polylysine capsules, thermoreversible gelation with agarose as a prototype system, interfacial precipitation and interfacial polymerization, as well as the technology of flat sheet and hollow fiber-based macroencapsulation. Four aspects of encapsulated cells that are critical for the success of the technology, namely the capsule permeability, mechanical properties, immune protection and biocompatibility, have been singled out and methods to evaluate these properties were summarized. Finally, speculations regarding future directions of cell encapsulation research and device development are included from the authors' perspective.