Extracellular matrix (ECM) stiffness and cell density can regulate osteoblast differentiation in two dimensional environments. However, it is not yet known how osteoblast-osteocyte differentiation is regulated within a 3D ECM environment, akin to that existing in vivo. In this study we test the hypothesis that osteocyte differentiation is regulated by a 3D cell environment, ECM stiffness and cell density. We encapsulated MC3T3-E1 pre-osteoblastic cells at varied cell densities (0.25, 1 and 2 x 10(6) cells/mL) within microbial transglutaminase (mtgase) gelatin hydrogels of low (0.58 kPa) and high (1.47 kPa) matrix stiffnesses. Cellular morphology was characterised from phalloidin-FITC and 4',6-diamidino-2-phenylindole (DAPI) dilactate staining. In particular, the expression of cell dendrites, which are phenotypic of osteocyte differentiation, were identified. Immunofluorescent staining for the osteocytes specific protein DMP-1 was conducted. Biochemical analyses were performed to determine cell number, alkaline phosphatase activity and mineralisation at 2.5 hours, 3, 21 and 56 days. We found that osteocyte differentiation and the formation of an interconnected network between dendritic cells was significantly increased within low stiffness 3D matrices, compared to cells within high stiffness matrices, at high cell densities. Moreover we saw that this network was interconnected, expressed DMP-1 and also connected with osteoblast-like cells at the matrix surface. This study shows for the first time the role of the 3D physical nature of the ECM and cell density for regulating osteocyte differentiation and the formation of the osteocyte network in vitro. Future studies could apply this method to develop 3D tissue engineered constructs with an osteocyte network in place.