Encapsulation of PC12 cells in poly(lactic-co-glycolic) acid was achieved using co-axial electrospinning. Co-axial electrospinning consists of two concentric capillaries compared to only one capillary in conventional electrospinning. This allows for the processing of two liquid solutions simultaneously and allows for electrospinning of aqueous solutions. Neural cells suspended in cell culture media were injected in the inner capillary, while the encapsulating polymer was injected in the outer capillary at controlled flow rates. On application of high voltage a compound jet formed at the capillaries exit and resulted in a co-electrospun fiber of nerve cells encapsulated in poly(lactic-co-glycolic) acid. The voltage was varied from 0 to 10 kV and various flow rates for the solutions were tested to achieve stable cone-jet mode in electrospinning. The cell density in the media was varied from 1 million to100 million cells/ml. polymer solution concentration was varied from 0.1 to 10 mg/ml. This resulted in a different fiber diameter three dimensional scaffolds which were collected on the grounded substrate. The nerve cells were found to be viable after electrospinning process. This technique may be very useful for the development of cell encapsulated scaffolds for tissue engineering applications such as nervous system regeneration.