Microencapsulation is an innovative finishing technique primarily used in food and drug industries, but recently, it has received considerable attention in the field of textile finishing. This process involves formation of capsules consisting of core materials and polymeric shell materials. Core materials play a key role in imparting functionalization to the textile substrate. There are numerous methods, such as spray drying, in situ polymerization, and coacervation, to produce microcapsules. In the field of textile engineering, the application of microcapsules can be achieved by different post-treatment processes or during the spinning stage. Core materials from the microcapsules can be released due to physical action with the help of different stimuli such as temperature. Microencapsulation brings lots of benefits for the user by incorporating core substances that can work against different environmental conditions. However, it also has some limitations, considering the use of polymeric materials and application methods. This chapter focuses on the morphology of microcapsules, methods to produce and apply them to the textile substrate, release mechanism, and application field in the textile sector.