Microgels are hydrogel particles with micro‐scale dimensions in the range of 10–1000 µm. They have gained particular importance for cell microencapsulation, because they allow for highly specific creation of a myriad of discrete and miniaturized mimics of the three‐dimensional natural extracellular matrix of tissues. This trend article highlights and critically reviews current droplet‐based microfluidic approaches for the formation of such cell‐laden microgels. It addresses the technical issues of particle formation, the most common polymers used for microgel preparation, and the different types of polymer crosslinking. Furthermore, remaining technical challenges in the field are discussed and perspectives for further development and potential future applications are provided.