Existing techniques to encapsulate cells into microscale hydrogels generally yield high polymer-to-cell ratios and lack control over the hydrogel's mechanical properties. Here, we report a microfluidic-based method for encapsulating single cells in an approximately six-micrometre layer of alginate that increases the proportion of cell-containing microgels by a factor of ten, with encapsulation efficiencies over 90%. We show that in vitro cell viability was maintained over a three-day period, that the microgels are mechanically tractable, and that, for microscale cell assemblages of encapsulated marrow stromal cells cultured in microwells, osteogenic differentiation of encapsulated cells depends on gel stiffness and cell density. We also show that intravenous injection of singly encapsulated marrow stromal cells into mice delays clearance kinetics and sustains donor-derived soluble factors in vivo. The encapsulation of single cells in tunable hydrogels should find use in a variety of tissue engineering and regenerative medicine applications.