An interfacial precipitation process to encapsulate mammalian cells in hydroxyethyl methacrylate-methyl methacrylate (HEMA-MMA) microcapsules of similar to 750 in mu m diameter was previously described. It was not possible to produce smaller capsules due to low shearing force. A new droplet generation scheme was developed by suspending the cell and polymer co-extrusion nozzle in a uniform co-axial fluid jet which enabled the production of 300 to 600-mu m diameter capsules. HepG2 hepatoma cells in 400-mu m-diameter HEMA-MMA capsules were able to retain their metabolic activity during and after the encapsulation process. The in vitro secretion of plasma proteins alpha(1)-acid glycoprotein, alpha(1)-antitrypsin, and fibrinogen by the encapsulated cells was retained. The encapsulated cells secreted less fibrinogen (340 kD) relative to alpha(1)-acid glycoprotein (42 kD), indicating the sieving effect (but not absolute cut-off) of the HEMA-MMA membrane.