Caffeic acid phenethyl ester (CAPE) has various biological activities but low water solubility and poor bioavailability. In this study, CAPE was encapsulated in skim milk powder (SMP) by spray drying warm aqueous ethanol solutions with different mass ratios of SMP and CAPE. The loading capacity and encapsulation efficiency were up to 10.1 and 41.7%, respectively. Differential scanning calorimetry and X-ray diffraction results confirmed the loss of crystallinity of CAPE after encapsulation. Fourier-transform infrared and fluorescence spectroscopy results indicated the hydrophobic binding between CAPE and caseins. Scanning electron microscopy and static light scattering results showed spherical capsules with an average diameter of around 26 μm. The CAPE loaded in SMP microcapsules showed significantly improved bioaccessibility and antiproliferation activity against human colon cancer cells compared to free CAPE. The simple, scalable, and low-cost approach in the present study may be significant for industrial encapsulation of CAPE and other lipophilic bioactive compounds.