Fas ligand (CD95L/APO-1) is considered as a potent anti-tumor agent due to its mediated cell death properties. We have designed a polymeric microencapsulation system, which encapsulates soluble FasL secreting cells. The encapsulated cells continuously release soluble FasL (sFasL) at the tumor site, while the device protects the encapsulated cells from the host immune system. The potential and efficacy of this system are demonstrated in vitro and in vivo for tumor inhibition. Polymeric microcapsules composed of Alginate Poly-l-lysine were optimized to encapsulate L5 secreting sFasL cells. The expression and anti-tumor activities of the sFasL were confirmed in vitro and tumor inhibition was studied in vivo in SCID mice bearing subcutaneous lymphoma tumors. In vitro, sFasL secreted by the encapsulated L5-sFasL cells was biologically active, inhibited proliferation and induced apoptotic cell death in Fas sensitive tumor cells. Mice injected with encapsulated L5-sFasL cells on the day of tumor injection or 10 days after tumor injection showed significant reduction in tumor volume, of 87% and 95%, respectively. Our findings show that encapsulated cells expressing sFasL can be used as a local device and efficiently suppress malignant Fas sensitive tumors with no side effects. (Cancer Sci 2012; 103: 116–124)