This paper presents a method to form micron-sized droplets in an aqueous two-phase system (ATPS) and to subsequently polymerize the droplets to produce hydrogel beads. Owing to the low interfacial tension in ATPS, droplets do not easily form spontaneously. We enforce the formation of drops by perturbing an otherwise stable jet that forms at the junction where the two aqueous streams meet. This is done by actuating a piezo-electric bending disc integrated in our device. The influence of forcing amplitude and frequency on jet breakup is described and related to the size of monodisperse droplets with a diameter in the range between 30 and 60 μm. Rapid on-chip polymerization of derivatized dextran inside the droplets created monodisperse hydrogel particles. This work shows how droplet-based microfluidics can be used in all-aqueous, surfactant-free, organic-solvent-free biocompatible two-phase environment.