Microencapsulation of genetically engineered cells has attracted much attention as an alternative nonviral strategy to gene therapy. Though smaller microcapsules (i.e. less than 300 μm) theoretically have various advantages, technical limitations made it difficult to prove this notion. We have developed a novel microfabricated device, namely a micro-airflow-nozzle (MAN), to produce 140 to 300 μm alginate microcapsules with a narrow size distribution. The MAN is composed of a nozzle with a 60 μm internal diameter for an alginate solution channel and airflow channels next to the nozzle. An alginate solution extruded through the nozzle was sheared by the airflow. The resulting alginate droplets fell directly into a CaCl2 solution, and calcium alginate beads were formed. The device enabled us to successfully encapsulate living cells into 150 μm microcapsules, as well as control microcapsule size by simply changing the airflow rate. The encapsulated cells had a higher growth rate and greater secretion activity of marker protein in 150 μm microcapsules compared to larger microcapsules prepared by conventional methods because of their high diffusion efficiency and effective scaffold surface area. The advantages of smaller microcapsules offer new prospects for the advancement of microencapsulation technology.