With the ever increasing demand for suitable tissue engineering and drug delivery systems, hydrogel fiber spinning has drawn increasing attention due to its ability to create threedimensional (3D) structures using biomaterials. Hydrogel materials have shown a great promise to be used as templates for tissue engineering and implantable devices. Among the many production techniques available, advanced fiber processing, such as coaxial and triaxial spinning of natural hydrogels, has attracted a great deal of attention because the basic core-sheath structure provides a drug delivery system capable of delivering high concentrations of drug for localized drug delivery and tissue engineering applications. Encapsulating the drug and bioactive cores with a more bio-friendly coating allows for a versatile system for producing deviceswith appropriatemechanical, chemical and biological properties that can mimic the native extracellular matrix, better supporting cell growth and maintenance. This chapter presents a novel fabricationmethod using a wet-spinning process that allows for the routine production of multifunctional coaxial hydrogel fibers that take advantage of the encapsulating properties of a hydrogel core while also promoting good cell growth and biocompatibility via the use of bio-friendly material in the sheath.