Designing new materials to encapsulate living therapeutic cells for the treatment of the diseases caused by protein or hormone deficiencies is a great challenge. The desired materials need to be biocompatible towards both entrapped cells and host organisms, have long-term in vivo stability after implantation, allow the diffusion of nutrients and metabolites, and ensure perfect immune-isolation. The current work investigates the in vivo biocompatibility and stability of alginate@TiO2 hybrid microcapsules and the immune-isolation of entrapped HepG2 cells, to assess their potential for cell therapy. A comparison was made with alginate-silica hybrid microcapsules (ASA). These two hybrid microcapsules are implanted subcutaneously in female Wistar rats. The inflammatory responses of the rats are monitored by the histological examination of the implants and the surrounding tissues, to indicate their in vivo biocompatibility towards the hosts. The in vivo stability of the microcapsules is evaluated by the recovery rate of the intact microcapsules after implantation. The immune-isolation of the entrapped cells is assessed by their morphology, membrane integrity and intracellular enzymatic activity. The results show high viability of the entrapped cells and insignificant inflammation of the hosts, suggesting the excellent biocompatibility of alginate@TiO2 and ASA microcapsules towards both host organisms and entrapped cells. Compared to the ASA microcapsules, more intact alginate@TiO2 hybrid microcapsules are recovered 2-day and 2-month post-implantation and more cells remain alive, proving their better in vivo biocompability, stability, and immune-isolation. The present study demonstrates that the alginate@TiO2 hybrid microcapsule is a highly promising implantation material for cell therapy.