The precipitate of the Disperse Red-1 dye in bulk and in confined microsized volumes was investigated by x-ray powder diffraction and molecular-dynamics simulations. The diffraction patterns exhibited two different precipitation regimes: In bulk when dye molecules form a distinct crystallite structure and inside polyelectrolyte capsules with a diameter up to 8 mum when the precipitate presumably represents a very fine polycrystalline powder. The latter result was further supported by molecular-dynamics simulations carried out for up to 640 dye molecules in the NVT ensemble. Calculations have also shown that effects of confined geometry and steric restrictions arising due to encapsulated polyelectrolyte molecules can not prohibit dye nucleation and subsequent crystallization. However, nonspecific interactions between Disperse Red-1 and encapsulated polyelectrolyte could cause the onset of heterogeneous nucleation resulting in formation of a fine polycrystalline powder. The formation process was directly observed building configuration snapshots and calculating the Gay-Berne orientational order parameter and radial distribution function resolved parallel and perpendicular to the director. Comparison of powder diagrams derived from simulation data indicates that it is nearly impossible to distinguish a fine polycrystalline powder from the isotropic system. (C) 2003 American Institute of Physics.