Although various cell encapsulation materials are available commercially for a wide range of potential therapeutic cells, their combined clinical impact remains inconsistent. Synthetic materials such as poly(ethylene glycol) (PEG) hydrogels are mechanically robust and have been extensively explored but lack natural biofunctionality. Naturally derived materials including collagen, fibrin and alginate-chitosan are often labile and mechanically weak. In this paper we report the development of a hybrid biomatrix based on the thiol-ene reaction of PEG diacrylate (PEGdA) and cysteine/PEG-modified gelatin (gel-PEG-Cys). We hypothesized that covalent crosslinking decreases gelatin dissolution thus increasing gelatin resident time within the matrix and the duration of its biofunctionality; at the same time the relative ratio of PEGdA to gel-PEG-Cys in the matrix formulation directly affects hydrogel bulk and local microenvironment properties. Bulk viscoelastic properties were highly dependent on PEGdA concentration and total water content, while gel-PEG-Cys concentration was more critical to swelling profiles. Microviscoelastic properties were related to polymer concentration. The covalently crosslinked gel-PEG-Cys with PEGdA decreased gelatin dissolution out of the matrix and collagenase-mediated degradation. Fibroblasts and keratinocyte increased adhesion density and formed intercellular connections on stiffer hydrogel surfaces, while cells exhibited more cytoplasmic spreading and proliferation when entrapped within softer hydrogels. Hence, this material system contains multiparametric factors that can easily be controlled to modulate the chemical, physical and biological properties of the biomatrix for soft tissue scaffolding and cell presentation to reconstruct lost tissue architecture and physical functionality.