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Abstract Neural progenitor cells (NPCs) are a promising cell source to repair damaged nervous tissue. However, expansion of therapeutically relevant numbers of NPCs and their efficient differentiation into desired mature cell types remains a challenge. Material‐based strategies, including culture within 3D hydrogels, have the potential to overcome these current limitations. An ideal material would enable both NPC expansion and subsequent differentiation within a single platform. It has recently been demonstrated that cell‐mediated remodeling of 3D hydrogels is necessary to maintain the stem cell phenotype of NPCs during expansion, but the role of matrix remodeling on NPC differentiation and maturation remains unknown. By culturing NPCs within engineered protein hydrogels susceptible to degradation by NPC‐secreted proteases, it is identified that a critical amount of remodeling is necessary to enable NPC differentiation, even in highly degradable gels. Chemical induction of differentiation after sufficient remodeling time results in differentiation into astrocytes and neurotransmitter‐responsive neurons. Matrix remodeling modulates expression of the transcriptional co‐activator Yes‐associated protein, which drives expression of NPC stemness factors and maintains NPC differentiation capacity, in a cadherin‐dependent manner. Thus, cell‐remodelable hydrogels are an attractive platform to enable expansion of NPCs followed by differentiation of the cells into mature phenotypes for therapeutic use.