Development of an alternative source of functional, transplantable beta-cells to replace or supplement cadaveric tissue is critical to the future success of islet cell transplantation therapy. Embryonic pancreatic precursor cells are desirable as a renewable source of beta-cells as they are both proliferative and inherently capable of pancreatic cell differentiation. We have previously shown that precursor cells undergo selective beta-cell differentiation when dissociated and photoencapsulated in a polyethylene glycol (PEG) hydrogel network; however, these cells remained immature and were not glucose responsive. Collagen type 1 supports mature cell viability and function in many cell types and we hypothesized that incorporating it within our gels may support differentiating beta-cells and facilitate beta-cell maturation. For these studies, collagen-1 was entrapped with dissociated pancreatic precursor cells in a PEG hydrogel matrix (PEGCol) with the following key findings: (1) mature, glucose-responsive, islet-like structures differentiated from spontaneously forming precursor cell clusters in PEGCol, but not unmodified PEG, hydrogels; (2) a balance existed between providing sufficient collagen-1 signaling to support precursor cell development and providing an overabundance of adhesive sites allowing contaminating mesenchymal cells to thrive' and (3) mechanical stability provided by the PEG hydrogel platform is important for successful precursor cell culture, as PEGCol hydrogels encourage glucose responsiveness and high-insulin gene expression, while pure collagen gel cultures, with the same collagen concentration, have negligible insulin gene expression. These results indicate that PEGCol hydrogels are a useful culture platform to promote differentiation of a glucose-responsive beta-cell population from dissociated precursor cells.