Pluripotent embryonic stem cells (ESCs) have tremendous potential as tools for regenerative medicine and drug discovery, yet the lack of processes to manufacture viable and homogenous cell populations of sufficient numbers limits the clinical translation of current and future cell therapies. Microencapsulation of ESCs within microbeads can shield cells from hydrodynamic shear forces found in bioreactor environments while allowing for sufficient diffusion of nutrients and oxygen through the encapsulation material. Despite initial studies examining alginate microbeads as a platform for stem cell expansion and directed differentiation, the impact of alginate encapsulation parameters on stem cell phenotype has not been thoroughly investigated. Therefore, the objective of this study was to systematically examine the effects of varying alginate compositions on microencapsulated ESC expansion and phenotype. Pre-formed aggregates of murine ESCs were encapsulated in alginate microbeads composed of a high or low ratio of guluronic to mannuronic acid residues (High G and High M, respectively), with and without a poly-L-lysine (PLL) coating, thereby providing four distinct alginate bead compositions for analysis. Encapsulation in all alginate compositions was found to delay differentiation, with encapsulation within High G alginate yielding the least differentiated cell population. The addition of a PLL coating to the High G alginate prevented cell escape from beads for up to 14 days. Furthermore, encapsulation within High M alginate promoted differentiation toward a primitive endoderm phenotype. Taken together, the findings of this study suggest that distinct ESC expansion capacities and differentiation trajectories emerge depending on the alginate composition employed, indicating that encapsulation material physical properties can be used to control stem cell fate. Biotechnol. Bioeng. 2014;111: 618–631. © 2013 Wiley Periodicals, Inc.