Lipid microtubules that self-assemble from a diacetylenic lipid are suitable structures for the sustained release of bioactive agents. Microtubules were loaded with agents under aqueous conditions and embedded in an agarose hydrogel for localization at areas of interest. Protein release from our microtubule-hydrogel delivery system was characterized in vitro, and in vivo biocompatibility was examined. The influences of protein molecular weight and initial loading concentration on release profile were evaluated by releasing test proteins myoglobin, albumin, and thyroglobulin. Protein molecular weight inversely affected the release rate, and loading with a higher protein concentration increased the mass but not the percent of initially loaded protein released daily. Preservation of protein activity was demonstrated by the ability of a neurotrophic factor released from the delivery system to induce neurite extension in PC12 cells. Bovine aortic smooth muscle cells co-cultured with the microtubule-hydrogel system showed no evidence of cytotoxicity and proliferated in the presence of the microtubules. Subcutaneous implantation of microtubules in rodents revealed no significant inflammatory response after 10 days. Our microtubule-hydrogel system is useful for applications where sustained release without contact between agent and organic solvents is desired.