Mucopolysaccharidosis type VII (MPSVII) is a lysosomal storage disease resulted from a deficiency of the enzyme β-glucuronidase (GUSB), which is necessary for degradation of glycosaminoglycans (GAGs). The deficiency of GUSB causes progressive accumulation of GAGs and subsequent lysosomal distension in multiple tissues, including the central nervous system (CNS). In murine experiments, bone marrow transplant, enzyme replacement, viral vectors, and genetically modified cells were successfully used for correction of the visceral accumulation of GAGs, but little improvement was seen in the brain, because these therapeutic agents cannot cross the blood-brain barrier (BBB). Although direct intracerebral injection of GUSB-encoding viral vectors has been developed to bypass the BBB, the possibility of tumor formation and the toxicity of over-expressed GUSB have been reported. In this study, we generated immortalized human amniotic epithelial (IHAE) cells to maintain the effect of implantation, and encapsulated these cells to prevent harmful immunological response and tumor formation and to regulate the level of GUSB expression within the host. Moreover, we generated IHAE cells that over-express and secrete human GUSB following transduction with an adenoviral vector encoding human GUSB. Therapeutic efficacy for MPSVII was evaluated in and ex vivo experiments using these encapsulated genetically engineered GUSB-encoding IHAE cells. We confirmed that encapsulated genetically engineered IHAE cells could secrete significant amounts of GUSB outside the capsule in vitro and into the cerebral parenchyma of C3H mice seven days after the capsule implantation. Thus, encapsulation cell therapy using genetically engineered IHAE cells is an effective armamentarium for the treatment of MPSVII.