Organizational design is considered in policy literature as a forceful policy tool to put policy to action. However, previous research has not analyzed the project organization as a specific form of organizational design and, hence, has not given much attention to such organizations as a strategic choice when selecting policy tools. The purpose of the article is to investigate the project as a policy tool; how do such temporary organizations function as a specific form of organization when public policy is implemented? The article is based on a framework of policy implementation and is illustrated with two welfare reforms in the Swedish public sector, which were organized and implemented as project organizations. The case studies and the analysis show that it is crucial that a project organization fits into the overall governance structure when used as a policy tool. If not, the project will remain encapsulated and will not have sufficient impact on the permanent organizational structure. The concept of encapsulation indicates a need to protect the project from a potential hostile environment. The implication of this is that organizational design as a policy tool is a matter that deserves more attention in the strategic discussion on implementing public policies and on the suitability of using certain policy tools. Copyright © 2012 John Wiley & Sons, Ltd.