Electrically conductive biomaterials that can efficiently deliver electrical signals to cells or improve electrical communication among cells have received considerable attention for potential tissue engineering applications. Conductive hydrogels are desirable particularly for neural applications, as they can provide electrical signals and soft microenvironments that can mimic native nerve tissues. In this study, conductive and soft polypyrrole/alginate (PPy/Alg) hydrogels are developed by chemically polymerizing PPy within ionically cross-linked alginate hydrogel networks. The synthesized hydrogels exhibit a Young's modulus of 20-200 kPa. Electrical conductance of the PPy/Alg hydrogels could be enhanced by more than one order of magnitude compared to that of pristine alginate hydrogels. In vitro studies with human bone marrow-derived mesenchymal stem cells (hMSCs) reveal that cell adhesion and growth are promoted on the PPy/Alg hydrogels. Additionally, the PPy/Alg hydrogels support and greatly enhance the expression of neural differentiation markers (i.e., Tuj1 and MAP2) of hMSCs compared to tissue culture plate controls. Subcutaneous implantation of the hydrogels for eight weeks induces mild inflammatory reactions. These soft and conductive hydrogels will serve as a useful platform to study the effects of electrical and mechanical signals on stem cells and/or neural cells and to develop multifunctional neural tissue engineering scaffolds.