There has been an increasing interest in understanding how the mechanical properties of the microenvironment influence stem cell fate. We describe studies of the proliferation and differentiation of neural stem cells (NSCs) encapsulated within three-dimensional scaffolds--alginate hydrogels--whose elastic moduli were varied over two orders of magnitude. The rate of proliferation of neural stem cells decreased with increase in the modulus of the hydrogels. Moreover, we observed the greatest enhancement in expression of the neuronal marker beta-tubulin III within the softest hydrogels, which had an elastic modulus comparable to that of brain tissues. To our knowledge, this work represents the first demonstration of the influence of modulus on NSC differentiation in three-dimensional scaffolds. Three-dimensional scaffolds that control stem cell fate would be broadly useful for applications in regenerative medicine and tissue engineering.