Cell-based therapies have potential for tissue regeneration but poor delivery methods lead to low viability or dispersal of cells from target sites, limiting clinical utility. Here, we developed a degradable and injectable hydrogel to deliver stem cells for bone regeneration. Alginate microbeads <200µm are injectable, persist at implantation sites and contain viable cells, but do not readily degrade in-vivo. We hypothesized that controlled release of rat adipose-derived stem cells (ASCs) from alginate microbeads can be achieved by incorporating alginate-lyase in the hydrogel. Microbeads were formed using high electrostatic potential. Controlled degradation was achieved through direct combination of alginate-lyase and alginate at 4°C. Results showed that microbead degradation and cell release depended on the alginate-lyase to alginate ratio. Viability of released cells ranged from 87% on day 2 to 71% on day 12. Monolayer cultures of released ASCs grown in osteogenic medium produced higher levels of osteocalcin and similar levels of other soluble factors as ASCs that were neither previously encapsulated nor exposed to alginate-lyase. Bmp2, Fgf2, and Vegfa mRNA in released cells were also increased. Thus, this delivery system allows for controlled release of viable cells and can modulate their downstream osteogenic factor production.