Irgacure 2959 (I2959) is widely used as a photoinitiator for photochemical crosslinking of hydrogels. However, the free radicals generated from I2959 have been reported to be highly cytotoxic. In this study, methacrylated collagen (CMA) hydrogels were photochemically crosslinked using two different photoinitiators (i.e., I2959 and VA086) and the effect of photoinitiator type, photoinitiator concentration (i.e., 0.02 and 0.1%) and crosslinking time (1 and 10 min) on gel morphology, compressive modulus, and stability were investigated. In addition, Saos‐2 cells were encapsulated within the hydrogels and the effect of photochemical crosslinking conditions on cell viability, metabolic activity, and osteoblast functionality was assessed. Scanning electron microscopy imaging showed that photochemical crosslinking decreased the porosity of the hydrogels resulting in decrease in water retention ability compared to uncrosslinked hydrogels. On the other hand, photochemical crosslinking improved the stability of CMA hydrogels (p < 0.05). Uniaxial compression tests showed that increasing the photoinitiator concentration significantly improved the compressive modulus of CMA hydrogels (p < 0.05). Results from the live–dead assay showed that VA086 crosslinked hydrogels exhibited higher cell viability compared to I2959 (p < 0.05) crosslinked hydrogels indicating that VA086 is more cytocompatible compared to I2959. Furthermore, Alizarin Red S staining revealed a significantly more pronounced cell‐mediated mineralization on VA086 crosslinked hydrogels (p < 0.05) indicating that Saos‐2 cells retain their normal functionality in the presence of VA086. In summary, these results indicate that VA086 is a more biocompatible photoinitiator compared to I2959 for the generation of photochemically crosslinked CMA hydrogels for tissue engineering applications. © 2019 Wiley Periodicals, Inc. J Biomed Mater Res Part A, 2019.