The simultaneous encapsulation of both luminescent semiconductor and magnetic oxide nanoparticles in polymer microcapsules is demonstrated for the first time. Highly luminescent CdTe semiconductor nanocrystals serve as luminescent markers, while magnetic Fe3O4 nanoparticles allow external manipulation of the capsules by magnetic field. The method introduced is general enough to allow the fabrication of different types of multifunctional capsules in a similar way. The use of multifunctional water-compatible capsules introduced in this paper for the controlled release and directed drug delivery in biological systems is envisaged.