The present study focused on using the encapsulation technique to obtain functional fabric as a wound-healing bandage. First, the capsules are formed by using Emulsion solvent evaporation method using alginate and chitosan as shell materials and natural oils (Sesame oil and fish oil (OMEGA 3) as a core material. The effects of process parameters such as alginate: chitosan ratio, the effect of surfactant concentration, and the effect of oil concentration were investigated. The formed capsules have been characterized using a particle size analyzer, Transmission Electronic Microscopy (TEM), oil release study to determine their structure, and the optimal parameters were achieved by using alginate: chitosan (5:1), 2% surfactant concentration, and 10% oil concentration. The cellulosic fabric was then treated with capsules solution in the presence and absence of crosslinkers in three different ways. The treated cotton samples were characterized by scanning electron microscopy (SEM), oil release study, antimicrobial activity, and cytotoxicity assessment. It was found that the pad-dry-cure treatment gives the best homogeneous coated layer from capsules on the surface of the fabric and the presence of crosslinkers makes the oil release less than their absence.