Cell therapy could be a solution for many diseases that currently pose a huge health burden on patients. Especially, cell therapies based on cell microencapsulation are of great interest. Immunoprotection of cells would allow to avoid the need for immunosuppression and the need for human donors, as the use of xenogeneic cell sources could be feasible. An optimal biomaterial for the microencapsulation of cells must be tailored for the type of cells and the intended application. Hydrogels are great candidates for cell immobilization, due to their high biocompatibility and extracellular matrix-like properties. Amongst them, alginate has outstanding potential with its favorable gelling properties, high biocompatibility, and relatively easy availability. However, in many aspects, it cannot fulfill the requirements of an optimal biomaterial for cell immobilization and transplantation. It lacks good mechanical properties, long-term durability and stability, and has poor shape recovery ability. In addition, severe immune reactions of the host system to the transplanted microcapsules can happen, which eventually result in cell death and early graft failure. Hence, the main focus of the present project was functionalization of alginate to develop new hydrogel materials with improved properties for cell microencapsulation. First, the thesis presents a robust, straightforward strategy and its optimization for the functionalization of alginate on the hydroxyl groups with poly(ethylene)glycol (PEG) via stable carbamate bond. The end-functionality of the heterobifunctional PEG provides a reactive group for covalent crosslinking. Hence, dual ionic-covalent microsphere preparation is achieved by extrusion of the aqueous polymer solution into a gelation bath containing ionic cross-linker and followed by concomitant covalent cross-linking. The possibility of using a variety of covalent cross-linkers was explored. Depending on the end-functionality of the heterobifunctional PEG, the chemical structure of the cross-linker is adjustable. This thesis presents thiol-thiol, thiol-acrylate, thiol-maleimide and thiol-acrylamide interactions, and compares the mechanical properties of the resulted microspheres to those of Ca-alginate. Both the mechanical resistance and the shape recovery performance of microspheres stabilized by an additional chemical cross-linking was improved. In addition, the stability of these microspheres towards non gellifying solutions was significantly enhanced. Still, biomaterials are exposed to the risk of immune responses when transplanted, such as inflammation and fibrosis. Introduction of the anti-inflammatory drug ketoprofen to alginate backbone through a PEG linker and consecutive microsphere formation provides controlled ketoprofen release. Based on this strategy, development of new types of anti-fibrotic derivatives of pirfenidone were realized. Conjugation of the most potential derivative to PEG followed by grafting on alginate resulted in a polymer capable of forming microspheres. Covalent conjugation of the drug was further compared to co-encapsulation of the drug with Ca-alginate. Eventually, the thesis presents the development of multicomponent hybrid hydrogel microspheres, combining the introduction of covalent cross-linking and anti-inflammatory compounds within the hydrogel network. The feasibility of using the newly developed biomaterials are confirmed by in vitro and in vivo assays.