Hepatocyte transplantation has been shown to provide significant metabolic support in several animal models of liver diseases. However, for it to be a viable alternative for supplementation of liver function in disease, large quantities of isolated hepatocytes would be necessary. At the present time there are no inexpensive routine methods for cryopreservation of hepatocytes. Existing procedures are cumbersome and require expensive programmable freezers. Hepatocyte cultures are sensitive and easily damaged in handling. By utilizing techniques of microencapsulation and cryopreservation we have attempted to overcome these problems. We have developed a simple, convenient, and inexpensive technique for the long-term storage of hepatocytes. Biological activity of the nonfrozen isolated encapsulated hepatocytes (IEH) and cryopreserved IEH (cIEH) was assessed both in tissue culture and by transplantation in Gunn rats. Significant urea and protein syntheses were detectable during the 10-day culture period even in the 30-day cIEH. Additionally, transplanted IEH and cIEH significantly reduced hyperbilirubinemia in Gunn rats for up to 30 days posttransplantation. Control (empty) microcapsules did not lower serum bilirubin levels. Thus we conclude: (1) cryopreservation of IEH is a convenient and cost-effective method for preserving and storing hepatocytes; (2) cryopreserved IEH function as well as nonfrozen IEH both in vitro and in vivo; (3) microencapsulation may protect hepatocytes from the adverse effects of cryopreservation.