Liver failure represents a critical medical condition with a traditionally grim prognosis, where treatment options have been notably limited. Historically, liver transplantation has stood as the sole definitive cure, yet the stark disparity between the limited availability of liver donations and the high demand for such organs has significantly hampered its feasibility. This discrepancy has necessitated the exploration of hepatocyte transplantation as a temporary, supportive intervention. In light of this, our review delves into the burgeoning field of hepatocyte transplantation, with a focus on the latest advancements in maintaining hepatocyte function, co-microencapsulation techniques, xenogeneic hepatocyte transplantation, and the selection of materials for microencapsulation. Our examination of hepatocyte microencapsulation research highlights that, to date, most studies have been conducted in vitro or using liver failure mouse models, with a notable paucity of experiments on larger mammals. The functionality of microencapsulated hepatocytes is primarily inferred through indirect measures such as urea and albumin production and the rate of ammonia clearance. Furthermore, research on the mechanisms underlying hepatocyte co-microencapsulation remains limited, and the practicality of xenogeneic hepatocyte transplantation requires further validation. The potential of hepatocyte microencapsulation extends beyond the current scope of application, suggesting a promising horizon for liver failure treatment modalities. Innovations in encapsulation materials and techniques aim to enhance cell viability and function, indicating a need for comprehensive studies that bridge the gap between small-scale laboratory success and clinical applicability. Moreover, the integration of bioengineering and regenerative medicine offers novel pathways to refine hepatocyte transplantation, potentially overcoming the challenges of immune rejection and ensuring the long-term functionality of transplanted cells. In conclusion, while hepatocyte microencapsulation and transplantation herald a new era in liver failure therapy, significant strides must be made to translate these experimental approaches into viable clinical solutions. Future research should aim to expand the experimental models to include larger mammals, thereby providing a clearer understanding of the clinical potential of these therapies. Additionally, a deeper exploration into the mechanisms of cell survival and function within microcapsules, alongside the development of innovative encapsulation materials, will be critical in advancing the field and offering new hope to patients with liver failure.