We describe a method for creating alginate hydrogels with adjustable degradation rates that can be used as scaffolds for stem cells. Alginate hydrogels have been widely tested as three-dimensional constructs for cell culture, cell carriers for implantation, and in tissue regeneration applications; however, alginate hydrogel implants can take months to disappear from implantation sites because mammals do not produce endogenous alginases. By incorporating poly(lactide-co-glycolide) (PLGA) microspheres loaded with alginate lyase into alginate hydrogels, we demonstrate that alginate hydrogels can be enzymatically degraded in a controlled and tunable fashion. We demonstrate that neural progenitor cells (NPCs) can be cultured and expanded in vitro in this degradable alginate hydrogel system. Moreover, we observe a significant increase in the expansion rate of NPCs cultured in degrading alginate hydrogels versus NPCs cultured in standard, i.e. non-degrading, alginate hydrogels. Degradable alginate hydrogels encapsulating stem cells may be widely applied to develop novel therapies for tissue regeneration.