Alginate-based materials have received considerable attention for biomedical applications because of their hydrophilic nature, biocompatibility, and physical architecture. Applications include cell encapsulation, drug delivery, stem cell culture, and tissue engineering scaffolds. In fact, clinical trials are currently being performed in which islets are encapsulated in PLO coated alginate microbeads as a treatment of type I diabetes. However, large numbers of islets are required for efficacy due to poor survival following transplantation. The ability to locally stimulate microvascular network formation around the encapsulated cells may increase their viability through improved transport of oxygen, glucose and other vital nutrients. Fibroblast growth factor-1 (FGF-1) is a naturally occurring growth factor that is able to stimulate blood vessel formation and improve oxygen levels in ischemic tissues. The efficacy of FGF-1 is enhanced when it is delivered in a sustained fashion rather than a single large-bolus administration. The local long-term release of growth factors from islet encapsulation systems could stimulate the growth of blood vessels directly towards the transplanted cells, potentially improving functional graft outcomes. In this article, we outline procedures for the preparation of alginate microspheres for use in biomedical applications. In addition, we describe a method we developed for generating multilayered alginate microbeads. Cells can be encapsulated in the inner alginate core, and angiogenic proteins in the outer alginate layer. The release of proteins from this outer layer would stimulate the formation of local microvascular networks directly towards the transplanted islets.