Encapsulated-cell therapy is an emerging technology that entails implantation of cell-containing devices that secrete therapeutic factors. One potential application of this technology is the delivery of neurotrophic factors to treat neurodegenerative disease. These devices typically use an internal matrix to serve as a cell scaffold. This study compares collagen-coated polyethylene terephthalate (PET) yarn scaffold versus collagen as a matrix for engineered C2C12 myoblasts. C2C12 cells transfected to secrete ciliary neurotrophic factor (CNTF) were immobilized in matrices and encapsulated into hollow fiber membrane devices. Encapsulated cells were monitored in vitro for viability, morphology, and factor secretion. Two independent methods (histology assessment and metabolic assay) were used to estimate viable cell density; a high correlation between the methods was found. After 4 weeks, encapsulated devices with PET scaffold had an almost nine-fold greater number of viable cells compared to collagen. PET matrix devices contained a thick annulus of compact, highly oriented cells. Collagen matrix devices contained sparse viable cells in a thin rim. Secretion assays showed cells in PET matrix released approximately four-fold the amount of CNTF versus cells in collagen (averaging 542 and 129 ng/day per device for PET and collagen matrix, respectively). The choice of encapsulation matrix was found to have a profound effect on cell morphology, level of secreted factor, and viability of encapsulated C2C12 cells.