To investigate the healing effect of microcapsules on microcracks in asphalt pavements, microcapsules were first prepared by in-situ polymerization from polyurea formaldehyde (as microcapsule wall) and bio-oil (as microcapsule heart), the appearance morphology and thermal stability of the microcapsules were investigated by scanning/transmission electron microscopy (SEM/TEM) and thermo gravimetric analysis (TGA). The microcapsules were then used to prepare microcapsule-styrene-butadiene-styrene (Microcapsule/SBS) composite modified asphalt, and the effect of microcapsules on the performance of the composite modified asphalt pavement was investigated by dynamic shear rheometry (DSR) and segregation tests. Finally, the healing effect of microcapsules was verified by ductility healing rate test and the healing mechanism was analyzed by a combination of macro and micro tests. The results showed that the microcapsules showed sphere-like shape and rougher surface, which increased the contact area with asphalt. In addition, the microcapsules have better thermal stability and their microcapsules wall can withstand the high temperature environment during the asphalt mixture production. With the addition of microcapsules, low temperature plasticity and heat resistance of the composite modified asphalt were increased. In addition, the storage modulus and loss modulus of the composite modified asphalt were also improved, i.e., the incorporation of microcapsules enhanced the viscoelastic properties of SBS modified asphalt, which can be attributed to the good compatibility of the added microcapsules with SBS and base asphalt. The uniform dispersion of the microcapsules within the asphalt and embedded in the reticular structure presented by the SBS was confirmed in the segregation tests and the fluorescence microscopy test. The highest healing rate of the composite modified asphalt was achieved when the content of microcapsules was 0.4%.