The present invention describes a process of preparing microcapsules in a UV curable water immiscible phase. The microcapsules formed according to the invention contain an aqueous phase core. The process comprises dispersing a water soluble or dispersible core material along with at least one wall forming prepolymer and a polycondensation polymerization catalyst into an aqueous solution. The aqueous phase is then dispersed into the water immiscible phase comprising UV curable monomers or oligomers forming droplets of the aqueous phase solution in the water immiscible phase. Polycondensation of the prepolymers is initiated to form polymeric wall material or microcapsules at or near the interface of the water immiscible solvent and droplets of aqueous phase solution. Following capsule formation, a UV initiator is dispersed in the water immiscible phase. The UV curable dispersion containing aqueous microcapsules can be coated on a substrate. The coating is then cured by UV irradiation forming a gelled, solidified, or dry coating of aqueous microcapsules.