Updated project metadata. Modifiable hydrogels have revealed tremendous insight into how physical characteristics of cells’ 3D environment drive stem cell lineage specification. However, in native tissues, cells do not passively receive signals from their niche. Instead they actively probe and modify their pericellular space to suit their needs, yet the dynamics of cells’ reciprocal interactions with their pericellular matrix when encapsulated within hydrogels remains relatively unexplored. Here, we show that human bone marrow stromal cells (hMSC) encapsulated within hyaluronic acid-based hydrogels modify their pericellular environment through degradation and/or protein secretion, imparting them with similar pericellular stiffnesses, regardless of initial hydrogel properties. These cell-secreted pericellular matrices play a role in regulating hMSC fate, with secretion of a stiff proteinaceous pericellular matrix associated with adipogenesis, and degradation with osteogenesis. Our observations suggest that hMSC participate in a bi-directional interplay between the properties of their 3D milieu and their own secreted pericellular matrix, and that this combination of interactions drives fate.