Paracrine factors secreted by mesenchymal stem cells (MSCs) have been previously shown to improve cardiac function following acute myocardial infarction (MI). However, cell therapy activates the innate immune response, leading to the rapid elimination of transplanted cells and only short-term therapeutic delivery. Herein, we describe a new strategy to deliver sustained paracrine-mediated MSC therapy to ischemic myocardium. Using an immune evasive, small molecule modified alginate, we encapsulated rat MSC cells in a core-shell hydrogel capsule and implanted them in the pericardial sac of post-MI rats. Encapsulated cells allowed diffusion of reparative paracrine factors at levels similar to non-encapsulated cells in vitro. Encapsulation enabled sustained cell survival with localization over the heart for 2 weeks. The effect of the experimental group on ventricular function and fibrosis was compared with blank (cell free) capsules and unencapsulated MSCs injected into infarcted myocardium. MSC capsules improved post-MI ventricular function ∼2.5× greater than MSC injection. After 4 weeks, post-MI fibrosis was reduced ∼2/3 with MSC capsules, but unchanged with MSC injection. MSC encapsulation with alginate core-shell capsules sustains cell survival and potentiates efficacy of therapy.