A composite collagen hydrogel containing protein encapsulated alginate microspheres was developed for ocular applications. Bovine serum albumin (BSA) served as a drug model. The composite hydrogel retained optical clarity and mechanical robustness of control hydrogels without microspheres. A sustained release of BSA was achieved during an 11-day period in neutral phosphate buffer. The composite hydrogel supported human corneal epithelial cell growth and had adequate mechanical strength and excellent optical clarity for possible use as therapeutic lens for drug delivery and/or use as corneal substitute for transplantation into patients who have corneal diseases.