An intestinal bio-microreactor with potential application prospect as a drug delivery system was proposed and studied. It was designed to overcome the problems such as complexity of separation and purification, and subsequent high costs, which always exist in producing genetically engineered drugs. For example, the process of separation and purification can be omitted by oral administration of genetically engineered microbes entrapped in semi-permeable membrane of microcapsules. The microencapsulated cells can live, metabolize and secrete therapeutic proteins in intestinal tract. In this paper, Pichia pastoris GS115 was selected as the model microbe, alginate-chitosan (AC) microcapsules as the carrier, and the physicochemical performance of the intestinal bio-microreactor was studied. It was found that the encapsulation efficiency of living yeast cells during the preparation of microcapsules was about 80%. It was shown that all AC microcapsules with yeast cells were kept intact in simulated gastric solution and simulated intestinal solution, and the survival of microencapsulated cells in simulated gastrointestinal solutions was 200-times higher than that of free cells, which showed that AC microcapsules can protect the activity of yeast cells. Furthermore, when being orally administered in mice, AC microcapsules could go through stomach and adhere to the surface of small intestinal mucous membrane over 12 h. Therefore, it was concluded that AC microencapsulated yeast cells could be used as intestinal bio-microreactor to secret bio-drugs in vivo directly.