During the morphogenesis of tissues and tumors, cells often interact with neighbors with different mechanical properties, but the understanding of its role is lacking. We use active Brownian dynamics simulations to study a model co-culture consisting of two types of cells with the same size and self-propulsion speed, but different mechanical stiffness and cell-cell adhesion. As time evolves, the system phase separates out into clusters with distinct morphologies and transport properties for the two cell types. The density structure factors and the growth of cell clusters deviate from behavior characteristic of the phase separation in binary fluids. Our results capture emergent structure and motility previously observed in co-culture experiments and provide mechanistic insights into intercellular phase separation during development and disease.