Encapsulated hepatocyte transplantation and encapsulated mesenchymal stem cell transplantation are newly developed potential treatments for acute and chronic liver diseases, respectively. Cells are microencapsulated in biocompatible semi-permeable alginate-based hydrogels. Microspheres protect cells against antibodies and immune cells, while allowing nutrients, small/medium size proteins and drugs to diffuse inside and outside the polymer matrix. Microencapsulated cells are assessed in vitro and designed for experimental transplantation and for future clinical applications. Here, we describe the protocol for microencapsulation of hepatocytes and mesenchymal stem cells within hybrid poly(ethylene glycol)-alginate hydrogels.