A new process allows microencapsulation of purified human hemoglobin and 2,3-diphosphoglycerate to form neohemocytes. The microcapsule membrane is composed of phospholipids and cholesterol. Neohemocytes are substantially smaller than erythrocytes, contain 15.1 grams per decaliter of hemoglobin, and have a P50 value (the partial pressure of oxygen at which the hemoglobin is half-saturated) of 24.0 torr. All rats given 50-percent exchange transfusions survived with only limited evidence of reversible toxicity. Normal serum glutamate-pyruvate-transaminase values at 1, 7, and 30 days after transfusion were consistent with minimal hepatotoxicity. The concentration of blood urea-nitrogen was elevated by 35 percent after 1 day but returned to normal by day 7. However, histopathology revealed normal kidneys on day 1 as well as on days 7 and 30. Neohemocytes cleared from the circulation of transfused rats with an apparent half-life of 5.8 hours.