3D hepatic microtissues can serve as valuable liver analogues for cell-based therapies and for hepatotoxicity screening during preclinical drug development. However, hepatocytes rapidly dedifferentiate in vitro, and typically require 3D culture systems or co-cultures for phenotype rescue. In this work we present a novel microencapsulation strategy, utilizing coaxial flow-focusing droplet microfluidics to fabricate microcapsules with liquid core and poly(ethylene glycol) (PEG) gel shell. When entrapped inside these capsules, primary hepatocytes rapidly formed cell-cell contacts and assembled into compact spheroids. High levels of hepatic function were maintained inside the capsules for over ten days. The microencapsulation approach described here is compatible with difficult-to-culture primary epithelial cells, allows for tuning gel mechanical properties and diffusivity, and may be used in the future for high density suspension cell cultures., Statement of Significance: Our paper combines an interesting new way for making capsules with cultivation of difficult-to-maintain primary epithelial cells (hepatocytes). The microcapsules described here will enable high density suspension culture of hepatocytes or other cells and may be used as building blocks for engineering tissues., (Copyright © 2017 Acta Materialia Inc. Published by Elsevier Ltd. All rights reserved.)