Radiation therapy for head and neck cancers leads to permanent xerostomia due to the loss of secretory acinar cells in the salivary glands. Regenerative treatments utilizing primary submandibular gland (SMG) cells show modest improvements in salivary secretory function, but there is limited evidence of salivary gland regeneration. We have recently shown that poly(ethylene glycol) (PEG) hydrogels can support the survival and proliferation of SMG cells as multicellular spheres in vitro. To further develop this approach for cell-based salivary gland regeneration, we have investigated how different modes of PEG hydrogel degradation affect the proliferation, cell-specific gene expression, and epithelial morphology within encapsulated salivary gland spheres. Comparison of non-degradable, hydrolytically-degradable, matrix metalloproteinase (MMP)-degradable, and mixed mode-degradable hydrogels showed that hydrogel degradation by any mechanism is required for significant proliferation of encapsulated cells. The expression of acinar phenotypic markers Aqp5 and Nkcc1 was increased in hydrogels that are MMP-degradable compared with other hydrogel compositions. However, expression of secretory acinar proteins Mist1 and Pip was not maintained to the same extent as phenotypic markers, suggesting changes in cell function upon encapsulation. Nevertheless, MMP- and mixed mode-degradability promoted organization of polarized cell types forming tight junctions and expression of the basement membrane proteins laminin and collagen IV within encapsulated SMG spheres. This work demonstrates that cellularly remodeled hydrogels can promote proliferation and gland-like organization by encapsulated salivary gland cells as well as maintenance of acinar cell characteristics required for regenerative approaches. Investigation is required to identify approaches to further enhance acinar secretory properties.