Encapsulated microbubbles combined with ultrasound have been widely utilized in various biomedical applications; however, the bubble dynamics in viscoelastic medium have not been completely understood. It involves complex interactions of coated microbubbles with ultrasound, nearby microbubbles and surrounding medium. Here, a comprehensive model capable of simulating the complex bubble dynamics was developed via taking the nonlinear viscoelastic behaviors of the shells, the bubble–bubble interactions and the viscoelasticity of the surrounding medium into account simultaneously. For two interacting lipid-coated bubbles with different initial radii in viscoelastic media, it exemplified that the encapsulating shell, the inter-bubble interactions and the medium viscoelasticity would noticeably suppress bubble oscillations. The inter-bubble interactions exerted a much stronger suppressing effect on the small bubble within the parameters examined in this paper, which might result from a larger radiated pressure acting on the small bubble due to the inter-bubble interactions. The lipid shells make the microbubbles exhibit two typical asymmetric dynamic behaviors (i.e., compression or expansion dominated oscillations), which are determined by the initial surface tension of the bubbles. Accordingly, the inertial cavitation threshold decreases as the initial surface tension increases, but increases as the shell elasticity and viscosity increases. Moreover, with the distance between bubbles decreasing and/or the initial radius of the large bubble increasing, the oscillations of the small bubble decrease and the inertial cavitation threshold increases gradually due to the stronger suppression effects caused by the enhanced bubble–bubble interactions. Additionally, increasing the elasticity and/or viscosity of the surrounding medium would also dampen bubble oscillations and result in a significant increase in the inertial cavitation threshold. This study may contribute to both encapsulated microbubble-associated ultrasound diagnostic and emerging therapeutic applications.