One of the first strategies for cancer gene therapy was the use of suicide gene/prodrug combinations, originally delivered to tumor cells using viral vectors. A major limitation of this approach was the inefficiency of suicide gene delivery. An alternative strategy, in which the suicide genes are physically juxtaposed to the tumor, involves the implantation of encapsulated, genetically modified cells. Cell encapsulation technologies were originally developed for the treatment of acquired and genetic diseases, such as diabetes. In the application of this technology for the treatment of tumors, cells that are genetically modified to overexpress suicide genes are encapsulated and implanted near solid tumors; this process is then followed by systemic prodrug administration. This review discusses the various cells types, suicide genes and prodrugs that have been used in preclinical and clinical trials, as well as the data that have been obtained from these studies. Future improvements for the production of second-generation approaches are also discussed.