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Biomedical devices such as islet‐encapsulating systems are used for treatment of type 1 diabetes (T1D). Despite recent strides in preventing biomaterial fibrosis, challenges remain for biomaterial scaffolds due to limitations on cells contained within. The study demonstrates that proliferation and function of insulinoma (INS‐1) cells as well as pancreatic rat islets may be improved in alginate hydrogels with optimized gel%, crosslinking, and stiffness. Quantitative polymerase chain reaction (qPCR)‐based graft phenotyping of encapsulated INS‐1 cells and pancreatic islets identified a hydrogel stiffness range between 600 and 1000 Pa that improved insulin Ins and Pdx1 gene expression as well as glucose‐sensitive insulin‐secretion. Barium chloride (BaCl2) crosslinking time is also optimized due to toxicity of extended exposure. Despite possible benefits to cell viability, calcium chloride (CaCl2)‐crosslinked hydrogels exhibited a sharp storage modulus loss in vitro. Despite improved stability, BaCl2‐crosslinked hydrogels also exhibited stiffness losses over the same timeframe. It is believed that this is due to ion exchange with other species in culture media, as hydrogels incubated in dIH2O exhibited significantly improved stability. To maintain cell viability and function while increasing 3D matrix stability, a range of useful media:dIH2O dilution ratios for use are identified. Such findings have importance to carry out characterization and optimization of cell microphysiological systems with high fidelity in vitro. [ABSTRACT FROM AUTHOR]