Mesenchymal stromal cells (MSCs) can promote tissue repair in regenerative medicine, and their therapeutic potential is further enhanced via spheroid formation. Stress relaxation of hydrogels has emerged as a potent stimulus to enhance MSC spreading and osteogenic differentiation, but the effect of hydrogel viscoelasticity on MSC spheroids has not been reported. Herein, we describe a materials-based approach to augment the osteogenic potential of entrapped MSC spheroids by leveraging the mechanical properties of alginate hydrogels. Compared to spheroids entrapped in covalently crosslinked elastic alginate, calcium deposition of MSC spheroids was consistently increased in ionically crosslinked, viscoelastic hydrogels. We previously demonstrated that intraspheroidal presentation of Bone Morphogenetic Protein-2 (BMP-2) on hydroxyapatite (HA) nanoparticles resulted in more spatially uniform MSC osteodifferentiation, providing a method to internally influence spheroid phenotype. In these studies, we observed significant increases in calcium deposition by MSC spheroids loaded with BMP-2-HA in viscoelastic gels compared to soluble BMP-2, which was greater than spheroids entrapped in all elastic alginate gels. Upon implantation in critically sized calvarial bone defects, bone formation was greater in all animals treated with viscoelastic hydrogels. Increases in bone formation were evident in viscoelastic gels, regardless of the mode of presentation of BMP-2 (i.e., soluble delivery or HA nanoparticles). These studies demonstrate that the dynamic mechanical properties of viscoelastic alginate are an effective strategy to enhance the therapeutic potential of MSC spheroids for bone formation and repair.