The expansion of umbilical cord blood mononuclear cells (UCB MNCs) was investigated in a novel co-culture system by means of encapsulation of rabbit bone marrow ( BM) mesenchymal stem cells (MSCs) in alginate beads (Alg beads). Three kinds of media were applied and the experiments lasted for 7 days. The total nucleated cell density was measured every 24 h. Flow cytometric assay for CD34(+) cells and methylcellulose colony assays were carried out at 0, 72 and 168 h. It was found that the encapsulated MSCs illustrated remarkable effects on UCB MNCs expansion regardless of whether serum is present in culture media or not. At the end of 168 h co-culture, the total nucleated cell number was multiplied by 15 +/- 2.9 times, and CD34(+) cells 5.3 +/- 0.3 times and colony-forming units in culture (CFU-Cs) 5.6 +/- 1.2 times in the serum-free media supplemented with conventional dose of cytokines, which was very similar to the results in the containing 20% serum media. While in the control, i. e. MNC expansion without encapsulated MSCs, however, total nucleated cells density changed mildly, CD34(+) cells and CFUCs showed little effective expansion. It is demonstrated that the encapsulated stromal cells can support the expansion of UCB MNCs effectively under the experimental condition.