Stem cell transplantation has been widely acknowledged for their immense potential in regenerative medicine. In these procedures, the implanted cells need to maintain both their viability and functional properties for effective therapeutic outcomes. This has long been a subject of major concern and intensive studies. Microencapsulation of stem cells within polymeric microcapsules can be an efficient approach to achieve this goal, particularly for heart diseases. This study reports the use of biocompatible, fluorogenic genipin-cross-linked alginate chitosan (GCAC) microcapsules in delivery of human adipose stem cells (hASCs) with an aim to increase the implant retention in the infarcted myocardium for maximum clinical benefits. In vitro results show, under hypoxic conditions, the microencapsulated cells overexpressed significantly higher amount of biologically active vascular endothelial growth factor (VEGF). We investigated on the in vivo potential using immunocompetent female rats after induction of myocardial infarction. For this, animal groups (n = 8) received empty control microcapsules, 1.5 × 10(6) free male hASCs, or 1.5 × 10(6) microencapsulated male hASCs. Results show significant retention (3.5 times higher) of microencapsulated hASCs compared to free hASCs after 10 weeks of transplantation. Microencapsulated hASCs showed significantly attenuated infarct size compared to free hASCs and empty microcapsule group (21.6% ± 1.1% vs. 27.2% ± 3.1% vs. 33.3% ± 3.2%; p < 0.05), enhanced vasculogenesis, and improved cardiac function (fractional shortening: 24.2% ± 2.1% vs. 19.1% ± 0.5% vs. 12.0% ± 4.0%; p < 0.05). These data suggest that microencapsulated hASCs can contribute significantly to the improvement in cardiac functions. Their greater retentions exhibit reduced fibrosis and cardiac dysfunction in experimental animals. However, further research is needed to fully comprehend the underlying biological and immunological effects of microencapsulated hASCs, which jointly play important roles in cardiac repair.