The implantation of genetically-modified non-autologous cells in immuno-protected microcapsules is an alternative to ex vivo gene therapy. Such cells delivering a recombinant therapeutic product are isolated from the hosts immune system by being encapsulated within permselective microcapsules. This approach has been successful in pre-clinical animal studies involving delivery of hormone or enzymes to treat dwarfism, lysosomal storage disease, or hemophilia B. Recently, this platform technology has shown promise in the treatment for more complex diseases such as cancer. One of the earliest strategy was to augment the chemotherapeutic effect of a prodrug by implanting encapsulated cells that can metabolise prodrugs into cytotoxic products in close proximity to the cancer cells. More recent approaches include enhancing tumor cell death through immunotherapy, or suppressing tumor cell proliferation through anti-angiogenesis. These can be achieved by delivering single molecules of cytokines or angiostatin, respectively, by implanting microencapsulated cells engineered to secrete these recombinant products. Recent refinements of these approaches include genetic fusion of cytokines or angiostatin to additional functional groups with tumor targeting or tumor cell killing properties, thus enhancing the potency of the recombinant products. Furthermore, a COMBO strategy of implanting microencapsulated cells to deliver multiple products targeted to diverse pathways in tumor suppression also showed much promise. This review will summarise the application of microencapsulation of genetically-modified cells to cancer treatment in animal models, the efficacy of such approaches, and how these studies have led to better understanding of the biology of cancer treatment. The flexibility of this modular system involving molecular engineering, cellular genetic modification, and polymer chemistry provides potentially a huge range of application modalities, and a tremendous multi-disciplinary challenge for the future.