Human periodontal ligament stem cells (hPDLSCs) are promising cells for dental and periodontal regeneration. This study aimed to develop novel alginate-fibrin fibers that encapsulates hPDLSCs and metformin, to investigate the effect of metformin on the osteogenic differentiation of hPDLSCs, and to determine the regulatory role of the Shh/Gli1 signaling pathway in the metformin-induced osteogenic differentiation of hPDLSCs for the first time. CCK8 assay was used to evaluate hPDLSCs. Alkaline phosphatase (ALP) staining, alizarin red S staining, and the expression of osteogenic genes were evaluated. Metformin and hPDLSCs were encapsulated in alginate-fibrinogen solutions, which were injected to form alginate-fibrin fibers. The activation of Shh/Gli1 signaling pathway was examined using qRT-PCR and western blot. A mechanistic study was conducted by inhibiting the Shh/Gli1 pathway using GANT61. The administration of 50 μM metformin resulted in a significant upregulation of osteogenic gene expression in hPDLSCs by 1.4-fold compared to the osteogenic induction group (P < 0.01), including ALP and runt-related transcription factor-2 (RUNX2). Furthermore, metformin increased ALP activity by 1.7-fold and bone mineral nodule formation by 2.6-fold (P<0.001). We observed that hPDLSCs proliferated with the degradation of alginate-fibrin fibers, and metformin induced their differentiation into the osteogenic lineage. Metformin also promoted the osteogenic differentiation of hPDLSCs by upregulating the Shh/Gli1 signaling pathway by 3- to 6- fold compared to the osteogenic induction group (P<0.001). The osteogenic differentiation ability of hPDLSCs were decreased 1.3- to 1.6-fold when the Shh/Gli1 pathway was inhibited, according to ALP staining and alizarin red S staining (P<0.01). Metformin enhanced the osteogenic differentiation of hPDLSCs via the Shh/Gli1 signaling pathway. Degradable alginate-fibrin hydrogel fibers encapsulating hPDLSCs and metformin have significant potential for use in dental and periodontal tissue engineering applications. Alginate-fibrin fibers encapsulating hPDLSCs and metformin have a great potential for use in the treatment of maxillofacial bone defects caused by trauma, tumors, and tooth extraction. Additionally, they may facilitate the regeneration of periodontal tissue in patients with periodontitis.