Milk and sodium alginate beads (SA) as encapsulation materials can improve the viability of Lacticaseibacillus acidophilus LAC5. The present study focused on interactive structural optimization of milk and SA-based beads for improved survival of L. acidophilus LAC5 in cheddar cheese. L. acidophilus was microencapsulated using varying concentrations of milk and SA, e.g., T0 (Milk/SA 0:0), T1 (Milk/SA 1/1:1), T2 (Milk/SA 1/2:1), T3 (Milk/SA 1/1:1.5), T4 (Milk/SA1/2:1.5), T5 (Milk/SA 1/1:2.0) and T6 (Milk/SA 1/2:2.0). Free and encapsulated L. acidophilus were compared for their survival in gastroenteric conditions. Structural and spectral analysis was performed using scanning electron microscope (SEM) and Fourier transform infrared spectrometry (FTIR). The free and encapsulated probiotics were incorporated into cheddar cheese. Organic acids were quantified using HPLC. The combination of SA and milk significantly (p < 0.05) improved the survival of L. acidophilus as compared to free cells. The increase in polymer concentration improved the structure of beads and the survival of probiotics. However, the release profile of beads decreased with the increase in polymer concentration. FTIR showed the presence of milk and SA in the beads. Better storage stability (108 CFU/mL) was observed for T6 in all the treatments as compared to free cells. The addition of encapsulated cells improved the sensory characteristics of cheese. This may help the local food industry to utilize native probiotic strains to be incorporated into probiotic foods with improved bio-accessibility.