We present a novel fully hydrophilic, hydrolytically degradable poly(ethylene glycol) (PEG) hydrogel suitable for soft tissue engineering and delivery of protein drugs. The gels were designed to overcome drawbacks associated with current PEG hydrogels (i.e., reaction mechanisms or degradation products that compromise protein stability): the highly selective and mild cross-linking reaction allowed for encapsulating proteins prior to gelation without altering their secondary structure as shown by circular dichroism experiments. Further, hydrogel degradation and structure, represented by mesh size, were correlated to protein release. It was determined that polymer density had the most profound effect on protein diffusivity, followed by the polymer molecular weight, and finally by the specific chemical structure of the cross-linker. By examining the diffusion of several model proteins, we confirmed that the protein diffusivity was dependent on protein size as smaller proteins (e.g., lysozyme) diffused faster than larger proteins (e.g., Ig). Furthermore, we demonstrated that the protein physical state was preserved upon encapsulation and subsequent release from the PEG hydrogels and contained negligible aggregation or protein-polymer adducts. These initial studies indicate that the developed PEG hydrogels are suitable for release of stable proteins in drug delivery and tissue engineering applications.