A mild chitosan/calcium alginate microencapsulation process, as applied to encapsulation of biological macromolecules such as albumin and hirudin, was investigated. The polysaccharide chitosan was reacted with sodium alginate in the presence of calcium chloride to form microcapsules with a polyelectrolyte complex membrane. Hirudin-entrapped alginate beads were further surface coated with polyethylene glycol (PEG) via glutaraldehyde functionalities. It was observed that approximately 70% of the content is being released into Tris-HCl buffer, pH 7.4 within the initial 6 h and about 35% release of hirudin was also observed during treatment with 0.1 M HCl, pH 1.2 for 4 h. But acid-treated capsules had released almost all the entrapped hirudin into Tris-HCl, pH 7.4 media within 6 h. From scanning electron microscopic and swelling studies, it appears that the chitosan and PEG have modified the alginate microcapsules and subsequently the protein release. The microcapsules were also prepared by adding dropwise albumin-containing sodium alginate mixture into a PEG- CaCl2 system. Increasing the PEG concentration resulted in a decrease rate of albumin release. The results indicate the possibility of modifying the formulation to obtain the desired controlled release of bioactive peptides (hirudin), for a convenient gastrointestinal tract delivery system.