Hydrogel droplets are biodegradable and biocompatible materials with promising applications in tissue engineering, cell encapsulation, and clinical treatments. They represent a well-controlled microstructure to bridge the spatial divide between two-dimensional cell cultures and three-dimensional tissues, toward the recreation of entire organs. The applications of hydrogel droplets in regenerative medicine require a thorough understanding of microfluidic techniques, the biocompatibility of hydrogel materials, and droplet production and manipulation mechanisms. Although hydrogel droplets were well studied, several emerging advances promise to extend current applications to tissue engineering and beyond. Hydrogel droplets can be designed with high surface-to-volume ratios and a variety of matrix microstructures. Microfluidics provides precise control of the flow patterns required for droplet generation, leading to tight distributions of particle size, shape, matrix, and mechanical properties in the resultant microparticles. This review focuses on recent advances in microfluidic hydrogel droplet generation. First, the theoretical principles of microfluidics, materials used in fabrication, and new 3D fabrication techniques were discussed. Then, the hydrogels used in droplet generation and their cell and tissue engineering applications were reviewed. Finally, droplet generation mechanisms were addressed, such as droplet production, droplet manipulation, and surfactants used to prevent coalescence. Lastly, we propose that microfluidic hydrogel droplets can enable novel shear-related tissue engineering and regeneration studies.