The prognosis of pancreatic cancer is poor, and current medical treatment is mostly ineffective. The aim of this study was to design a new treatment modality in an animal model system. We describe here a novel treatment strategy employing a mouse model system for pancreatic carcinoma. Embryonal kidney epithelial cells were genetically modified to express the cytochrome P450 subenzyme 2B1 under the control of a cytomegalovirus (CMV) immediate early promoter. This CYP2B1 gene converts ifosfamide to its active cytotoxic compounds, phosphoramide mustard, which alkylates DNA, and acrolein, which alkylates proteins. The cells were then encapsulated in a cellulose sulphate formulation and implanted into preestablished tumors derived from a human pancreatic tumor cell line. Intraperitoneal administration of low-dose ifosfamide to tumor bearing mice that received the encapsulated cells results in partial or even complete tumor ablation. Such an in situ chemotherapy strategy utilizing genetically modified cells in an immunoprotected environment may prove useful for solid tumor therapy in man.