Background Miniaturization of biochemical reaction volumes within artificial microcompartments has been the key driver for directed evolution of several catalysts in the past two decades. Typically, single cells are co-compartmentalized within water-in-oil emulsion droplets with a fluorogenic substrate whose conversion allows identification of catalysts with improved performance. However, emulsion droplet-based technologies prevent cell proliferation to high density and preclude the feasibility of biochemical reactions that require the exchange of small molecule substrates. Here, we report on the development of a high-throughput screening method that addresses these shortcomings and that relies on a novel selective permeable polymer hydrogel microcapsule. Results Hollow-core polyelectrolyte-coated chitosan alginate microcapsules (HC-PCAMs) with selective permeability were successfully constructed by jet break-up and layer-by-layer (LBL) technology. We showed that HC-PCAMs serve as miniaturized vessels for single cell encapsulation, enabling cell growth to high density and cell lysis to generate monoclonal cell lysate compartments suitable for high-throughput analysis using a large particle sorter (COPAS). The feasibility of using HC-PCAMs as reaction compartments which exchange small molecule substrates was demonstrated using the transpeptidation reaction catalyzed by the bond-forming enzyme sortase F from P. acnes. The polyelectrolyte shell surrounding microcapsules allowed a fluorescently labelled peptide substrate to enter the microcapsule and take part in the transpeptidation reaction catalyzed by the intracellularly expressed sortase enzyme retained within the capsule upon cell lysis. The specific retention of fluorescent transpeptidation products inside microcapsules enabled the sortase activity to be linked with a fluorescent readout and allowed clear separation of microcapsules expressing the wild type SrtF from those expressing the inactive variant. Conclusion A novel polymer hydrogel microcapsule-based method, which allows for high-throughput analysis based on encapsulation of single cells has been developed. The method has been validated for the transpeptidation activity of sortase enzymes and represents a powerful tool for screening of libraries of sortases, other bond-forming enzymes, as well as of binding affinities in directed evolution experiments. Moreover, selective permeable microcapsules encapsulating microcolonies provide a new and efficient means for preparing novel caged biocatalyst and biosensor agents.