Transplanting human induced pluripotent stem cells (iPSCs)-derived spinal cord progenitor cells (SCPCs) is a promising approach to treat spinal cord injuries. However, stem cell therapies face challenges in cell survival, cell localization to the targeted site, and the control of cell differentiation. Here, we encapsulated SCPCs in thiol-modified hyaluronan-gelatin hydrogels and optimized scaffold mechanical properties and cell encapsulation density to promote cell viability and neuronal differentiation in vitro and in vivo . Different compositions of hyaluronan-gelatin hydrogels formulated by varying concentrations of poly(ethylene glycol) diacrylate were mechanically characterized by using atomic force microscopy. In vitro SCPC encapsulation study showed higher cell viability and proliferation with lower substrate Young's modulus (200 Pa vs 580 Pa) and cell density. Moreover, the soft hydrogels facilitated a higher degree of neuronal differentiation with extended filament structures in contrast to clumped cellular morphologies obtained in stiff hydrogels ( p < 0.01). When transplanted in vivo , the optimized SCPC-encapsulated hydrogels resulted in higher cell survival and localization at the transplanted region as compared to cell delivery without hydrogel encapsulation at 2 weeks postimplantation within the rat spinal cord ( p < 0.01). Notably, immunostaining demonstrated that the hydrogel-encapsulated SCPCs differentiated along the neuronal and oligodendroglial lineages in vivo. The lack of pluripotency and proliferation also supported the safety of the SCPC transplantation approach. Overall, the injectable hyaluronan-gelatin hydrogel shows promise in supporting the survival and neural differentiation of human SCPCs after transplantation into the spinal cord.