Genetically modified cells encapsulated in alginate-poly-L-lysine-alginate (APA) are being developed to deliver therapeutic products to treat a variety of diseases. The characterization of the encapsulated cells thus becomes paramount. This study reports a novel method to assess the viability, granularity and proliferation of encapsulated cells based on flow cytometry. The in vitro viability of encapsulated G8 murine myoblasts secreting canine FVIII (cFVIII) measured by flow cytometry was comparable to the traditional trypan blue exclusion method and both correlated with cFVIII secretion levels. In contrast, after implantation into mice, only viability measured by flow cytometry correlated with cFVIII secretion. Further, flow cytometry analysis of encapsulated cells maintained in vitro and in vivo revealed a greater fraction of granular cells compared to free cells, suggesting that encapsulation influences the morphology (cytoplasmic composition) of cells within APA microcapsules. Interestingly, the proliferation study showed that encapsulated cells proliferate faster, on average, and were more heterogeneous in vivo compared to in vitro culture conditions, suggesting that encapsulated cell proliferation is complex and environment-dependent. In conclusion, we show that flow cytometry analysis allows for a more consistent and comprehensive examination of encapsulated cells to aid in the development of cell therapy protocols.