The two-photon polymerization (2PP) of photosensitive gelatin in the presence of living cells is reported. The 2PP technique is based on the localized cross-linking of photopolymers induced by femtosecond laser pulses. The availability of water-soluble photo-initiators (PI) suitable for 2PP is crucial for applying this method to cell-containing materials. Novel Pis developed by our group allow 2PP of formulations with up to 80% cell culture medium. The cytocompatibility of these Pis was evaluated by an MTT assay. The results of cell encapsulation by 2PP show the occurrence of cell damage within the laser-exposed regions. However, some cells located in the immediate vicinity and even within the 2PP-produced structures remain viable and can further proliferate. The control experiments demonstrate that the laser radiation itself does not damage the cells at the parameters used for 2PP. On the basis of these findings and the reports by other groups, we conclude that such localized cell damage is of a chemical origin and can be attributed to reactive species generated during 2PP. The viable cells trapped within the 2PP structures but not exposed to laser radiation continued to proliferate. The live/dead staining after 3 weeks revealed viable cells occupying most of the space available within the 3D hydrogel constructs. While some of the questions raised by this study remain open, the presented results indicate the general practicability of 2PP for 3D processing of cell-containing materials. The potential applications of this highly versatile approach span from precise engineering of 3D tissue models to the fabrication of cellular microarrays.