Linear stability analysis is performed for a mathematical model of diffusion of gases from an encapsulated microbubble. It is an Epstein-Plesset model modified to account for encapsulation elasticity and finite gas permeability. Although bubbles, containing gases other than air, are considered, the final stable bubble, if any, contains only air, and stability is achieved only when the Surrounding medium is saturated or over-saturated with air. In absence of encapsulation elasticity, only a neutral stability is achieved for zero surface tension, the other solution being unstable. For an elastic encapsulation, different equilibrium solutions are obtained depending on the saturation level and whether the surface tension is smaller or higher than the elasticity. For an elastic encapsulation, elasticity can stabilize the bubble. However, imposing a non-negativity condition on the effective surface tension (consisting of reference surface tension and the elastic stress) leads to an equilibrium radius which is only neutrally stable. If the encapsulation can support a net compressive stress, it achieves actual stability. The linear stability results are consistent with our recent numerical findings. Physical mechanisms for the stability or instability of various equilibriums are provided. (C) 2009 Elsevier Inc. All rights reserved.