This study was designed to develop a microencapsulated, water-soluble isoflavone for application into milk and to examine the hypocholesterolemic effect of such a milk product in a rat diet. The coating material was medium-chain triglyceride (MCT) and the core material was watersoluble isoflavone. The microencapsulation efficiency was 70.2% when the ratio (w/w) of coating material to core material was 15:1. The isoflavone release from the microcapsules was 8% after 3-day storage at $4^{circ}C$. In in vitro study, 4.0-9.3% of water-soluble isoflavone in simulated gastric fluid was released in the pH range of 2 to 5 after 60 min incubation; however, in simulated intestinal fluid at pH 8, 87.6% of isoflavone was released from the capsules after 40 min incubation time. In sensory analysis, the scores of bitterness, astringency, and off-taste in the encapsulated isoflavone-added milk were slightly, but not significantly, different from those in uncapsulated, isoflavone-added milk. In blood analysis, total cholesterol was significantly decreased in the isoflavone-added group compared with that in the control after 6-week feeding. Therefore, this study confirmed the acceptability of MCT as a coating material in the microencapsulation of water-soluble isoflavone for application into milk, although a slight adverse effect was found in terms of sensory attributes. In addition, blood total cholesterol was lowered in rats which had been fed a cholesterol-reduced and microencapsulated, isoflavoneadded milk for 6 weeks.