The host immune system (T-lymphocytes and their pro-inflammatory cytokines) has been shown to compromise bone regeneration ability of mesenchymal stem cells (MSCs). We have recently shown that hydrogel, used as an encapsulating biomaterial affects the cross-talk among host immune cells and MSCs. However, the role of hydrogel elasticity and porosity in regulation of cross-talk between dental-derived MSCs and immune cells is unclear. In this study, we demonstrate that the modulus of elasticity and porosity of the scaffold influence T-lymphocyte-dental MSC interplay by regulating the penetration of inflammatory T cells and their cytokines. Moreover, we demonstrated that alginate hydrogels with different elasticity and microporous structure can regulate the viability and determine the fate of the encapsulated MSCs through modulation of NF-kB pathway. Our in vivo data show that alginate hydrogels with smaller pores and higher elasticity could prevent pro-inflammatory cytokine-induced MSC apoptosis by down-regulating the Caspase-3- and 8-associated proapoptotic cascades, leading to higher amounts of ectopic bone regeneration. Additionally, dental-derived MSCs encapsulated in hydrogel with higher elasticity exhibited lower expression levels of NF-kB p65 and Cox-2 in vivo. Taken together, our findings demonstrate that the mechanical characteristics and microarchitecture of the microenvironment encapsulating MSCs, in addition to presence of T-lymphocytes and their pro-inflammatory cytokines, affect the fate of encapsulated dental-derived MSCs.