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There is a critical need for biomaterials that support robust neovascularization for a wide-range of clinical applications. Here we report how cells alter tissue-level mechanical properties during capillary morphogenesis using a model of endothelial-stromal cell co-culture within poly(ethylene glycol) (PEG) based hydrogels. After a week of culture, we observed substantial stiffening in hydrogels with very soft initial properties. Endothelial cells or stromal cells alone, however, failed to induce hydrogel stiffening. This stiffening tightly correlated with degree of vessel formation but not with hydrogel compaction or cellular proliferation. Despite a lack of fibrillar architecture within the PEG hydrogels, cell-generated contractile forces were essential for hydrogel stiffening. Upregulation of alpha smooth muscle actin and collagen-1 was also correlated with enhanced vessel formation and hydrogel stiffening. Blocking cell-mediated hydrogel degradation abolished stiffening, demonstrating that matrix metalloproteinase (MMP)-mediated remodeling is required for stiffening to occur. These results highlight the dynamic reciprocity between cells and their mechanical microenvironment during capillary morphogenesis and provide important insights for the rational design of materials for vasculogenic applications.