An encapsulated particle comprises a core particle and a polyurethane layer disposed about the core particle. The core particle can be various particles, such as fertilizer, biocides, flame retardants, seeds, etc. The polyurethane layer comprises the reaction product of an isocyanate component and an isocyanate-reactive component. The isocyanate-reactive component comprises a graft polyol having a continuous phase and polymeric particles. A method of forming the encapsulated particle comprises the steps of providing the core particle, applying the isocyanate and isocyanate-reactive components to the core particle, and reacting the isocyanate and isocyanate-reactive components to form the polyurethane layer. The encapsulated particle has excellent physical properties, such as increased water repellency, resiliency and shelf life.