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Advancements in tissue engineering require the continuous development and understanding of new technologies to study cell behavior in vitro. Recently, microfluidic encapsulation of cells has emerged as an advantageous method in which cells are cultured in a three-dimensional (3D) microenvironment. Additionally, alginate modifications allow for manipulation of the extracellular matrix (ECM) to study cells in different conditions. This study focuses on the behavior of stem cells within various miniaturized 3D culture conditions of modified alginate biomaterials.First, mouse embryonic stem (mES) cells were cultured within a liquid core-shell microcapsule consisting of a liquid core and hydrogel shell of varying concentrations of alginate. It was hypothesized that the mES cells would behave differently when cultured in microcapsules with different shell properties; however, qRT-PCR analysis indicated no significant difference between gene expression of mES cells encapsulated in microcapsules with 2% or 3% alginate shells. As the shell alginate concentration didn’t seem to have an effect, the microcapsule size and composition of the shell were then altered, while inducing neural differentiation. Two alginate modifications were conducted: oxidation for increased degradation, and incorporation of the Arg-Gly-Asp (RGD) peptide for improved cell attachment. It was found through immunofluorescence staining that the mES cells cultured and differentiated in smaller microcapsules exhibited a higher expression of neural markers; therefore, small microcapsules were generated to incorporate the different alginate modifications into the microcapsule shell. Dendritic formation was observed to extend from mES cell aggregates that were cultured in neural differentiation conditions within small microcapsules with a oxidized:RGD alginate (30:70) shell. This promising phenomenon could potentially lead to developing a network of interacting neurons, which would be incredibly useful in the battle against neurodegenerative disorders. Finally, as the RGD peptide effects the mES cell behavior, other stem cells were encapsulated and cultured in conditions in which both shell and core contained RGD alginate. Human embryonic palatal mesenchyme cells, mesenchymal stem cells, and human adipose derived stem cells were cultured on a flat hydrogel of different concentrations of RGD alginate, and in the miniaturized 3D core of microcapsules with either a 2% alginate or 2% RGD alginate shell. The core was made of 0%, 0.5%, or 2% RGD alginate. Cell spreading was observed in all systems containing the RGD peptide, and the cell morphology was quantified by measuring the cell surface area and circularity. In all three types of stem cells, there was a significant increase in the cell surface area (p < 0.05) and a significant decrease in cell circularity (p < 0.01) in RGD alginate conditions, indicating that cells spread much more readily in environments containing the RGD peptide, whether it be a flat surface, curved surface, or a 3D hydrogel matrix. Through these studies, the cell response to a variety of physicochemical factors has been studied, indicating the ease with which alginate modifications can be used to create the optimal miniaturized 3D culture environment depending on a study’s focus. This type of control is highly desirable for advancements in cellular studies and the future of tissue engineering.