Alginate microcapsules may be used to encapsulate therapeutic cells and, thereby, to protect them from the host immune system. Both the biomaterial, as well as the therapeutic cells, may give rise to immunological reactions. We have developed methods that are useful in the study of capsule biocompatibility, as well as reactions against the grafts. These imply investigation of the survival of the encapsulated cells as well as fibrotic reactions against the microcapsules. Studies were performed in Balb/c mice with empty alginate-PLL-alginate microcapsules as well as microcapsules containing cells of human or mouse origin. Confocal laser scanning microscopy (CLSM) was used to visualize live and dead cells within the microcapsules and to define some of the cells involved in the fibrotic reaction against the microcapsules. In both grafts, live cells were detected seven days after transplantation. Minor fibrotic reactions were found against empty alginate-PLL-alginate microcapsules and to microcapsules containing mouse cells. An extensive fibrotic reaction was found one week after transplantation against microcapsules containing human cells, and the secretion of therapeutic protein endostatin had ceased. Fibroblasts and macrophages were involved in the fibrotic reaction against the xenograft.