Polymeric membranes have been used as interfaces between implantable devices and biological tissues to operate as a protective barrier from water exchanging and to enhance biocompatibility. Polyurethanes have been used as biocompatible membranes for decades. In this study, copolymers of polyether urethane (PEU) with polydimethylsiloxane (PDMS) were synthesised with the goal of creating materials with low water permeability and high elasticity. PDMS was incorporated into polymer backbone as a part of the soft segment during polyurethane synthesis and physical properties as well as water permeability of resulting copolymer were studied in regard to PDMS content. Increase in PDMS content led to increase of microphase separation of the copolymer and corresponding increase in elastic modulus. Surface energy of the polymer was decreased by incorporating PDMS compared to unmodified PEU. PDMS in copolymer formed a hydrophobic surface which caused reduction in water permeability and water uptake of the membranes. Thus, PDMS containing polyurethane with its potent water resistant properties demonstrated a great promise for use as an implantable encapsulation material. © 2009 Springer Science+Business Media, LLC.