A novel method to encapsulate MoSi2B healing particles was explored via in situ shell formation in yttria-stabilised zirconia thermal barrier coatings (YSZ-BCs). The shell formation was analysed for MoSi2B healing particles alloyed with 2, 6 and 12 wt% Al. According to oxidation kinetics study at 1100˚C using thermogravimetry, MoSi2B-12 wt% Al particles formed exclusive alumina formation via selective oxidation of Al due to the more homogeneous distribution of Mo(Si1-x,Alx)2 among the particles. A more exclusive alumina formation was also favoured by oxidation in lower pO2 using CO/CO2 (ratio of 4.2, pO2 of 9.1x10-14 atm) compared to oxidation in pure Argon. The shell formation of the Al-alloyed MoSi2B particles inside YSZ matrix composite was also studied. However, oxidation of composite containing MoSi2B-12 wt% Al in the CO/CO2 resulted in simultaneous oxidation of Al and Si with mixed silica-alumina was formed. This suggests zirconia matrix may play a role in oxidising the particles by partial reduction of YSZ. Nevertheless, shell showed protection for particles even after microcapsule stability test at 1100˚C in laboratory air for 100 hours. Crack-gap filling experiment was conducted for composites containing pre-encapsulated and in situ encapsulated MoSi2B-6 wt% Al particles. Healing treatment was done with exposing the composites at 1100 ˚C for 1, 4 and 16 hours in laboratory air. However, the crack-gap was filled with silica without any significant difference.