The biocompatibility of microcapsules made by the co-acervation of alginate and poly(l-lysine) (PLL) was enhanced by coating the surface of these microcapsules with a poly(ethylene glycol) (PEG)-based hydrogel. The hydrogel was formed by an interfacial photopolymerization technique using visible light from an argon ion laser. The light absorbing chromophore, eosin Y, was immobilized on the microcapsule surface. This restricted the formation of the PEG hydrogel to the surface of the microcapsule. The presence of the PEG gel on the surface was confirmed by fluorescent dextran entrapment, by direct visualization after dissolution of the underlying membrane and by electron spectroscopy for chemical analysis. The biological response of such microcapsules was evaluated by intraperitoneal implantation in mice. The PEG-coated microcapsules were found to be less inflammatory and were seen not to elicit a fibrotic response, as was the case with alginate-PLL microcapsules. [on SciFinder (R)]