There has been growing interest in designing and development of suitable micro or nano drug delivery system with the ability to target site specifically and release the payload in a predetermined fashion. Recently a new type of system called polyelectrolyte microcapsules and thin films have been proposed and developed for applications such as, biomedical devices to micro sensing and drug delivery. Owing to its advantages of mild preparation conditions, multifunctionality, with programmable characteristics and to encapsulate large amount of materials, it has shown immense potential. In the present research, multilayer polyelectrolyte thin films composed of Poly(methacrylic acid) (PMA) and Poly (vinyl pyrrolidone) (PVP) were deposited on the flat substrates using layer by layer (LBL) technique. The film growth and its deconstruction under physiological conditions were characterized using UV Visible spectrophotometer and Scanning Electron Microscopy (SEM). Hollow microcapsules composed of PMA and PVP were also produced with the help of sacrificial silica template using the same LBL adsorption technique. After coating the desired number of PVP and PMA layers, the colloidal template was removed with a buffer system composed of Hydrofluoric acid (HF) and Ammonium fluoride (NH4F). The obtained capsules were characterized for its surface morphology using SEM and Atomic Force Microscopy (AFM). The hydrogen bonding in capsule formation was confirmed by Fourier Transform Infrared Spectroscopy (FTIR). Encapsulation and release with the microcapsules was carried out using Rifampicin (Antitubercular drug) as a model drug. The interaction of empty and drug loaded capsules with Mycobacterium Smegmatis cell line was investigated. It was found that the empty capsules did not affect the cell growth indicating their biocompatibility. Confocal microscopy studies with Doxorubicin (anticancer drug), which is a naturally fluorescent molecule, showed the drug is indeed encapsulated inside the hollow capsule. From the above studies, it was concluded that polyelectrolyte capsules have the potential to be used for delivering drugs.