While general anesthetics control pain via consciousness regulation, local anesthetics (LAs) act by decreasing sensation in the localized area of administration by blocking nerve transmission to pain centers. Perioperative intra-articular administration of LAs is a commonly employed practice in orthopedic procedures to minimize patient surgical and post-surgical pain and discomfort. LAs are also co-administered with cellular mesenchymal stromal cell (MSC) therapies for a variety of tissue regenerative and inflammatory applications including osteoarthritis (OA) treatment; however, LAs can affect MSC viability and function. Therefore, finding an improved method to co-administer LAs with cells has become critically important. We have developed a sustained release LA delivery model that could enable the co-administration of LAs and MSCs. Encapsulation of liposomes within an alginate matrix leads to sustained release of bupivacaine as compared to bupivacaine-containing liposomes alone. Furthermore, drug release is maintained for a minimum of 4 days and the alginate-liposome capsules mitigated the adverse effects of bupivacaine on MSC viability.