Cell microencapsulation and subsequent transplantation of the microencapsulated cells require multidisciplinary approaches. Physical, chemical, biological, engineering, and medical expertise has to be combined. Several natural and synthetic polymeric materials and different technologies have been reported for the preparation of hydrogels, which are suitable to protect cells by microencapsulation. However, owing to the frequent lack of adequate characterization of the hydrogels and their components as well as incomplete description of the technology, many results of in vitro and in vivo studies appear contradictory or cannot reliably be reproduced. This review addresses the state of the art in cell microencapsulation with special focus on microencapsulated cells intended for xenotransplantation cell therapies. The choice of materials, the design and fabrication of the microspheres, as well as the conditions to be met during the cell microencapsulation process, are summarized and discussed prior to presenting research results of in vitro and in vivo studies. Overall, this review will serve to sensitize medically educated specialists for materials and technological aspects of cell microencapsulation.