Autologous bone grafting is the most effective treatment for long-bone nonunions, but it poses considerable risks to donors, necessitating the development of alternative therapeutics. Poly(ethylene glycol) (PEG) microencapsulation and BMP2 transgene delivery are being developed together to induce rapid bone formation. However, methods to make these treatments available for clinical applications are presently lacking. In this study we used mesenchymal stem cells (MSCs) due to their ease of harvest, replication potential, and immunomodulatory capabilities. MSCs were from sheep and pig due to their appeal as large animal models for bone nonunion. We demonstrated that cryopreservation of these microencapsulated MSCs did not affect their cell viability, adenoviral BMP2 production, or ability to initiate bone formation. Additionally, microspheres showed no appreciable damage from cryopreservation when examined with light and electron microscopy. These results validate the use of cryopreservation in preserving the viability and functionality of PEG-encapsulated BMP2-transduced MSCs.