Tissue engineering at single-cell resolution has enhanced therapeutic efficacy. Droplet microfluidics offers a powerful platform that allows deterministic single-cell encapsulation into aqueous droplets, yet the direct encapsulation of cells into microgels remains challenging. Here, the design of a microfluidic device that is capable of single-cell encapsulation within polyethylene glycol norbornene (PEGNB) hydrogels on-chip is reported. Cells are first ordered in media within a straight microchannel via inertial focusing, followed by the introduction of PEGNB solution from two separate, converging channels. Droplets are thoroughly mixed by passage through a serpentine channel, and microgels are formed by photo-photopolymerization. This platform uniquely enables both single-cell encapsulation and excellent cell viability post-photo-polymerization. More than 90% of singly encapsulated mesenchymal stromal cells (MSCs) remain alive for 7 days. Notably, singly encapsulated MSCs have elevated expression levels in genes that code anti-inflammatory cytokines, for example, IL-10 and TGF-β, thus enhancing the secretion of proteins of interest. Following injection into a mouse model with induced inflammation, singly encapsulated MSCs show a strong retention rate in vivo, reduce overall inflammation, and mitigate liver damage. These translational results indicate that deterministic single-cell encapsulation could find use in a broad spectrum of tissue engineering applications.