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The purpose of this research was to investigate the retention of flavour volatiles encapsulated in water-insoluble systems during high temperature–short time extrusion process. A protein precipitation method was used to produce water-insoluble capsules encapsulating limonene, and the capsules were added to the extruder feed material (cornstarch). A twin-screw extruder was used to evaluate the effect of capsule level of addition (0–5%), barrel temperature (125–145 °C) and screw speed (145–175 r.p.m.) on extruder parameters (torque, die pressure, specific mechanical energy, residence time distribution) and extrudate properties [flavour retention, texture, colour, density, expansion, water absorption index, water solubility index (WSI)]. Capsule level had a significant effect on extrusion conditions, flavour retention and extrudate physical properties. Flavour retention increased with the increase in capsule level from 0% to 2.5%, reached a maximum value at capsule level of 2.5% and decreased when the capsule level increased from 2.5% to 5%. The die pressure, torque, expansion ratio, hardness and WSI exhibited the opposite effect with the presence of capsules.