Encapsulation is a pivotal technique for protecting and enhancing the efficiency of sensitive natural bioactive substances, notably essential oils, vitamins, and phenolic compounds, widely used in foods and nutraceuticals. Critical considerations in selecting encapsulation agents encompass safety, release kinetics, stability, and cost-effectiveness. Yeast cells emerge as versatile carriers distinguished by their low cost, compatibility with biological systems, and eco-friendly degradation properties, accommodating both hydrophilic and hydrophobic bioactive agents. Various yeast strains, including Saccharomyces cerevisiae, Torulopsis lipofera, Cutaneotrichosporon curvatus, Yarrowia lipolytica, and Candida utilis, find utility in microencapsulation. Yeast cell encapsulation relies on the permeation of bioactive agents through yeast cell walls, predominantly composed of mannoproteins and polysaccharides. The encapsulation process includes passive or vacuum-infused diffusion of bioactive compounds inside yeast cells, precise droplet size control, and attractive forces to trap bioactive components within cellular structures. Yeast cells display versatility in various states, whether alive or dead, intact or plasmolyzed. In addition, the loading capacity of hydrophobic bioactives can be increased through chemical pretreatment techniques such as plasmolysis, autolysis, and enzyme hydrolysis, freeing up space within yeast cells by eliminating water-soluble components. In summary, yeast cell encapsulation presents a promising and sustainable technology with diverse applications within the food industry. Yeast cells enhance the stability and controlled release of bioactive compounds, magnifying the efficacy of natural hydrophobic bioactives like curcumin, essential oils, β-carotene, and vitamin D across various food products. This comprehensive review focuses on the encapsulation procedures, influential factors, characterization techniques, and applications, with a pronounced emphasis on hydrophobic materials.