Encapsulating living cells within multilayer functional shells is a crucial extension of cellular functions and a further development of cell surface engineering. In the last decade, cell encapsulation has been widely utilized in many cutting‐edge biomedical fields. Compared with other techniques for cell encapsulation, layer‐by‐layer (LbL) self‐assembly technology, due to the versatility and tunability to fabricate diverse multilayer shells with controllable compositions and structures, is considered as a promising approach for cell encapsulation. This review summarizes the state‐of‐the‐art and potential future biomedical applications of LbL cell encapsulation. First of all, a brief introduction to the LbL self‐assembly technique, including assembly mechanisms and technologies, is made. Next, different cell encapsulation strategies by LbL self‐assembly techniques are explained. Then, the biomedical applications of LbL cell encapsulation in cell‐based biosensors, cell transplantation, cell/molecule delivery, and tissue engineering, are highlighted. Finally, discussions on the current limitations and future perspectives of LbL cell encapsulation are also provided.