Engineering bone tissue requires the generation of a highly organized vasculature. Cellular behavior is affected by the respective niche. Directing cellular behavior and differentiation for creating mineralized regions surrounded by vasculature can be achieved by controlling the pattern of osteogenic and angiogenic niches. This manuscript reports on engineering vascularized bone tissues by incorporating osteogenic and angiogenic cell-laden niches in a photocrosslinkable hydrogel construct. Two-step photolithography process is used to control the stiffness of the hydrogel and distribution of cells in the patterned hydrogel. In addittion, osteoinductive nanoparticles are utilized to induce osteogenesis. The size of microfabricated constructs has a pronounced effect on cellular organization and function. It is shown that the simultaneous presence of both osteogenic and angiogenic niches in one construct results in formation of mineralized regions surrounded by organized vasculature. In addition, the presence of angiogenic niche improves bone formation. This approach can be used for engineered constructs that can be used for treatment of bone defects.