A composite material composed of maleic anhydride-grafted polycaprolactone (PCL-g-MA) and treated (cross-linked) marine algae powder (TMAP) was used to fabricate bacteria-encapsulated film bag (BEFB) material. The biodegradability of the composite was evaluated with regard to the controlled release of encapsulated bacteria. PCL and PCL-g-MA composite film bags were also assessed. Human lung fibroblasts were seeded onto two series of these composites to assess biocompatibility. The water resistance of PCL-g-MA/TMAP was greater than that of PCL/MAP, although the weight loss of both materials after burial in compost containing Burkholderia cepacia BCRC 14253 indicated comparable biodegradability, especially at high levels of MAP or TMAP substitution. After 120 days, the weight loss of the PCL-g-MA/TMAP (20 wt%) composite was greater than 50 %. PCL/MAP exhibited a weight loss of approximately 4–11 wt% more than PCL-g-MA/TMAP. The complete degradation of PCL, PCL-g-MA, and their composite film bags resulted in the release of encapsulated bacterial cells. These results demonstrate that the controlled release of BEFBs to enhance fertiliser utilisation is achievable.