Stem cell therapy has been a game changer in the treatment of immune system deficiencies. However, a critical limitation of current approaches is cell delivery efficiency which gets significantly reduced due to shear flow and immune reaction in vivo. A solution to this problem is covering cells with a protective hydrogel layer and we develop microfluidic methods to encapsulate cells. We study cell behavior in single to multicellular encapsulated microgels and investigate how stem cells differentiate over time.