Cell-matrix interactions have critical roles in regeneration, development and disease. The work presented here demonstrates that encapsulated human mesenchymal stem cells (hMSCs) can be induced to differentiate down osteogenic and adipogenic pathways by controlling their three-dimensional environment using tethered small-molecule chemical functional groups. Hydrogels were formed using sufficiently low concentrations of tether molecules to maintain constant physical characteristics, encapsulation of hMSCs in three dimensions prevented changes in cell morphology, and hMSCs were shown to differentiate in normal growth media, indicating that the small-molecule functional groups induced differentiation. To our knowledge, this is the first example where synthetic matrices are shown to control induction of multiple hMSC lineages purely through interactions with small-molecule chemical functional groups tethered to the hydrogel material. Strategies using simple chemistry to control complex biological processes would be particularly powerful as they could make production of therapeutic materials simpler, cheaper and more easily controlled.