Iron oxide nanoparticles were synthesized inside 5 mum polyelectrolyte capsules. The capsule wall, made of polyelectrolyte multilayers of poly(styrenesulfonate) (PSS) and poly(allylamine hydrochloride) (PAH), is permeable for small ions but not for polymers. To perform particle synthesis exclusively in the capsule interior, capsules were loaded with PAH. Encapsulation of PAH was done by assembly of a double-shell structure on a decomposable 5 mum template. The outer shell is composed of stable PAH/PSS multilayers, while the inner shell is a complex of PAH with multivalent anions. This complex can be dissolved, releasing small ions outside and keeping PAH inside the capsules. This was proved by fluorescent confocal microscopy. The presence of polycations inside the capsules maintains a pH gradient across the capsule wall according to a Donnan equilibrium. By use of fluorescent markers covalently bound to PAH, pH measurements in the capsule interior revealed a basic pH inside the capsule. Fe3+ ions penetrating capsule walls face a higher pH and precipitate in the interior, forming iron oxide particles. These particles were studied by transmission electron microscopy.