We present an overview of the preparation and properties of layer-by-layer (LbL) deposited thin films and microcapsules in relation to their use in the development of biosensors and controlled release systems. Enzyme biosensors can be constructed by immobilizing enzymes on the surface of electrodes by LbL deposition without loss of their catalytic activity. In addition to synthetic polymers, binding proteins, such as avidin and lectin, are also used for constructing LbL films through avidin-biotin and lectin-sugar interactions. The performance characteristics of LbL film-based biosensors can be tuned by controlling the number of layers and by the choice of film components. The permeability of polyelectrolyte LbL films to ions and molecules is discussed in relation to the use of the films for eliminating interference in biosensors. The possible use of polysaccharide LbL film-coated electrodes for the construction of biosensors is highlighted, and examples of LbL film- and microcapsule-based optical sensors are described. We then focus on the use of LbL films and microcapsules as vehicles for controlled release, in particular on recent progress in the controlled release of insulin from LbL films and microcapsules. LbL films composed of insulin and polymers are sensitive to environmental pH, and release insulin in response to pH changes, suggesting that insulin LbL films can be used in the development of orally administered insulin. The construction of glucose-dependent insulin release systems using LbL insulin microcapsules functionalized with phenylboronic acid, lectin, and glucose oxidase is also examined.