Hydrogel scaffolds encapsulating C2C12 mouse skeletal muscle cells have been engineered as in vitro constructs towards regenerative medicine therapies for the enhancement and inducement of functional skeletal muscle formation. Previous work has largely involved two-dimensional (2D) muscle strips, naturally occurring hydrogels and incomplete examination of the effects of the scaffold and/or biological functionalization on myogenic differentiation in a controllable manner. The goal of this study was to identify key properties in functionalized poly(ethylene glycol) (PEG)–maleimide (MAL) synthetic hydrogels that promote cell attachment, proliferation and differentiation for the formation of multinucleated myotubes and functional skeletal muscle tissue constructs. Significant differences in myoblast viability were observed as a function of cell seeding density, polymer weight percentage and bioadhesive ligands. The identified optimized conditions for cell survival, required for myotube development, were carried over for differentiation assays. PEG hydrogels (5% weight/volume), functionalized with 2.0 mm RGD adhesive peptide and crosslinked with protease-cleavable peptides, incubated for 3 days before supplementation with 2% horse serum, significantly increased expression of differentiated skeletal muscle markers by 50%; 17% more multinucleated cells and a 40% increase in the number of nuclei/differentiated cell compared to other conditions. Functionality of cell-laden hydrogels was demonstrated by a 20% decrease in the extruded length of the hydrogel when stimulated with a contractile agent, compared to 7% for a saline control. This study provided strategies to engineer a three-dimensional (3D) microenvironment, using synthetic hydrogels to promote the development of differentiated muscle tissue from skeletal muscle progenitor cells to form contractile units. Copyright © 2014 John Wiley & Sons, Ltd.