Multistep enzyme systems can be immobilized in solution within semipermeable microcapsules. With the ability to recycle cofactors, a number of potentially useful systems have been made possible. Furthermore NAD+ can be retained inside the microcapsules by two approaches. (1) NAD+ can be linked to macromolecules such as dextran or polyethyleneimine. However, in this form, there are significant increases in steric hindrance and diffusion restrictions. (2) "Artificial cells" consisting of lipid-polyamide membrane microcapsules containing multienzyme systems, cofactors, and substrates can retain NAD+ in the free form. Analogous to the intracellular environments of red blood cells, free NAD+ in solution inside the microcapsules is effectively recycled by the multistep enzyme systems which are also in solution. Enzymes in the microcapsules are in high concentrations and in close proximity to one another. Any number and any concentration of different enzyme systems can be microencapsulated all within one artificial cell, within the limit of solubility of the total amount of enzymes. Products of sequential reactions inside the microcapsules are at much higher concentrations than outside. All these factors result in an optimal intracellular environment for multistep enzyme reactions. External substrates in the form of lipophilic or small hydrophilic molecules can equilibrate across the membrane to participate as initial substrates in the multistep reactions in the microcapsules. A number of potential applications are possible using this approach. The lipid-polyamide membrane artificial cell can also be used in basic research as a biochemical cell model for the simpler types of biological cells such as erythrocytes.