We have studied the encapsulation of human progenitor cells into 3D PEG hydrogels. Replication-incompetent lentivirus promoter reporter vectors were found to efficiently detect the in vivo expression of human hepatic genes in hydrogel-encapsulated liver progenitor cells. Similarly, hydrogel-encapsulated cells could be efficiently infected with hepatitis C virus, and progeny infectious virus could be recovered from the media supernatants of the hydrogels. Provocatively, the diameters of these virus particles range from approximately 50 to 100 nm, while the calculated mesh size of the 8 k hydrogel is 44.6 +/- 1.7 A. To reconcile how viral particles can penetrate the hydrogels to infect the encapsulated cells, we propose that microfractures/defects of the hydrogel result in a functional pore size of up to 20 fold greater than predicted by theoretical mesh calculations. These results suggest a new model of hydrogel structure, and have exciting implications for tissue engineering and hepatitis virus studies.