A novel photodiode-embedded yarn has been presented and characterized for the first time, offering new possibilities for applications including monitoring body vital signs (including heart rate, blood oxygen and skin temperature) and environmental conditions (light, humidity and ultraviolet radiation). To create an E-Textile integrated with electronic devices that is comfortable, conformal, aesthetically pleasing and washable, electronic components are best integrated within the structure of a textile fabric in yarn form. The device is first encapsulated within a protective clear resin micro-pod before being covered in a fibrous sheath. The resin micro-pod and covering fibres have a significant effect on the nature of light received by the photoactive region of the device. This work characterised the effects of both encapsulating photodiodes within resin micro-pods and covering the micro-pod with a fibrous sheath on the opto-electronic parameters. A theoretical model is presented to provide an estimate for these effects and validated experimentally using two photodiode types and a range of different resin micro-pods. This knowledge may have wider applications to other devices with small-scale opto-electronic components. Wash tests confirmed that the yarns could survive multiple machine wash and drying cycles without deterioration in performance.