Stable, semipermeable polyamide microcapsules were prepared by interfacial polymerization from a mixture of 1,6-hexanediamine and poly(allylamine) crosslinked with di-acid chlorides and were used to encapsulate baker’s yeast. The size and distribution of cells within the capsules were investigated by a combination of laser confocal, electron scanning, and transmission electron microscopy. The encapsulated cells were studied as a biocatalyst for the model reduction of 1-phenyl-1,2-propanedione to 2-hydroxy-1-phenyl-1-propanone in a number of organic solvents. The polymerization conditions were extensively investigated and were found to greatly influence the product yield. Microencapsulated yeast cells, prepared under optimized conditions, carried out the reduction more efficiently than free cells as well as those immobilized in alginate and kappa-carrageenan beads. The developed methodology should be broadly applicable to other biotransformations of interest.