Biophysical and biochemical properties of the microenvironment regulate cellular responses such as growth, differentiation, morphogenesis and migration in normal and cancer cells. Since two-dimensional (2D) cultures lack the essential characteristics of the native cellular microenvironment, three-dimensional (3D) cultures have been developed to better mimic the natural extracellular matrix. To date, 3D culture systems have relied mostly on collagen and Matrigel™ hydrogels, allowing only limited control over matrix stiffness, proteolytic degradability, and ligand density. In contrast, bioengineered hydrogels allow us to independently tune and systematically investigate the influence of these parameters on cell growth and differentiation. In this study, polyethylene glycol (PEG) hydrogels, functionalized with the Arginine-glycine-aspartic acid (RGD) motifs, common cell-binding motifs in extracellular matrix proteins, and matrix metalloproteinase (MMP) cleavage sites, were characterized regarding their stiffness, diffusive properties, and ability to support growth of androgen-dependent LNCaP prostate cancer cells. We found that the mechanical properties modulated the growth kinetics of LNCaP cells in the PEG hydrogel. At culture periods of 28 days, LNCaP cells underwent morphogenic changes, forming tumor-like structures in 3D culture, with hypoxic and apoptotic cores. We further compared protein and gene expression levels between 3D and 2D cultures upon stimulation with the synthetic androgen R1881. Interestingly, the kinetics of R1881 stimulated androgen receptor (AR) nuclear translocation differed between 2D and 3D cultures when observed by immunofluorescent staining. Furthermore, microarray studies revealed that changes in expression levels of androgen responsive genes upon R1881 treatment differed greatly between 2D and 3D cultures. Taken together, culturing LNCaP cells in the tunable PEG hydrogels reveals differences in the cellular responses to androgen stimulation between the 2D and 3D environments. Therefore, we suggest that the presented 3D culture system represents a powerful tool for high throughput prostate cancer drug testing that recapitulates tumor microenvironment.