We undertook a series of studies to evaluate the role of microenvironment during embryonic stem cell (ESC) proliferation and differentiation. In this paper, cell microencapsulation technology was employed, which allows the free exchange of nutrients, oxygen and biologically active products between the entrapped cell and culture medium. We analyzed the feasibility of mouse ESCs in microcapsules and evaluated the growth, metabolic activity and differentiation of ESCs once enclosed in alginate-Ca(2+) microbead, solid or liquefied core alginate-poly-lysine-alginate (APA) microcapsule, respectively. We found that ESCs grew gradually in both types of microcapsules, but the appearance of cells was distinctive for each type of capsule. In the case of unliquefied microcapsules, cells created multiple spherical or lens-shaped aggregates. In contrast, the liquefied alginate core allowed the enclosed ESCs to grow together in a clump at the periphery of the capsule. Combined with cell viability and activity of glucose/lactic acid metabolism, the liquefied core of APA might provide more suitable culture conditions for the ESC growth in comparison with the unliquefied type or alginate-Ca(2+). For better evaluating the nature of ESC growth in APA microcapsules in vitro (that is whether or not encapsulated ESCs maintained undifferentiated state while they kept the ability for proliferation), the expression of the typical markers for undifferentiated, dividing ESCs, such as the stage specific embryonic antigen (SSEA-1) and alkaline phosphatase (AP), was detected by immunochemistry and immunofluorescence staining. The results showed that cell aggregates formed in the microcapsule still expressed the marker proteins at a higher level on day 22 in vitro. The expression of gene Oct-4, a transcription factor necessary for maintaining ESCs in an undifferentiated state, was also detected when RT-PCR assay was employed (on day 22 in vitro). In addition, cell aggregates were released from the microcapsules by mechanical disruption and induced into insulin-producing cells. These findings further indicate that most of the ESCs in APA microcapsule maintain their multi-potential even though the culture time prolonged as long as 22 d in vitro. Taken together, APA microcapsule provides a suitable microenvironment that promotes ESCs to maintain their stemness. Therefore, the microenvironment plays an important role in the process of ESC proliferation and differentiation.