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MDCK cells were engineered to express luciferase driven by cytomegalovirus (CMV) or hybrid ubiquitin B (UbB) promoter and encapsulated in alginate-poly-L-lysine-alginate microcapsules. In vitro experiments showed capsules could be monitored individually or in multi-layers quantitatively. When luciferase-expressing and non-luciferase expressing MDCK cells were mixed at different ratios and encapsulated, the signals increased linearly according to the number of capsules, in vitro and in vivo. For CMV-driven luciferase expression, the strongest signal was seen at 4 hours post-implantation, with a subsequent 50% decrease by 24 hours and then declined gradually to 10-20% until day 20. However, retrieved capsules showed good cell viability. When capsules contained plasmid driven by UbB promoter, there was no decline in signal. Our results indicate that luciferase could be used as a marker for microencapsulated cells to monitor the viability and gene expression of the implanted cells.