Hydrogels with the potential to provide minimally invasive cell delivery represent a powerful tool for tissue-regeneration therapies. In this context, entrapped cells should be able to escape the matrix becoming more available to actively participate in the healing process. Here, we analyzed the performance of proteolytically degradable alginate hydrogels as vehicles for human mesenchymal stem cells (hMSC) transplantation. Alginate was modified with the matrix metalloproteinase (MMP)-sensitive peptide Pro-Val-Gly-Leu-Iso-Gly (PVGLIG), which did not promote dendritic cell maturation in vitro, neither free nor conjugated to alginate chains, indicating low immunogenicity. hMSC were entrapped within MMP-sensitive and MMP-insensitive alginate hydrogels, both containing cell-adhesion RGD peptides. Softer (2 wt % alginate) and stiffer (4 wt % alginate) matrices were tested. When embedded in a Matrigel layer, hMSC-laden MMP-sensitive alginate hydrogels promoted more extensive outward cell migration and invasion into the tissue mimic. In vivo, after 4 weeks of subcutaneous implantation in a xenograft mouse model, hMSC-laden MMP-sensitive alginate hydrogels showed higher degradation and host tissue invasion than their MMP-insensitive equivalents. In both cases, softer matrices degraded faster than stiffer ones. The transplanted hMSC were able to produce their own collagenous extracellular matrix, and were located not only inside the hydrogels, but also outside, integrated in the host tissue. In summary, injectable MMP-sensitive alginate hydrogels can act as localized depots of cells and confer protection to transplanted cells while facilitating tissue regeneration.