Rapid progress in algal biotechnology has triggered a growing interest in hydrogel-encapsulated microalgal cultivation, especially for the engineering of functional photosynthetic materials and biomass production. An overlooked characteristic of gel-encapsulated cultures is the emergence of cell aggregates, which are the result of the mechanical confinement of the cells. Such aggregates have a dramatic effect on the light management of gel-encapsulated photobioreactors and hence strongly affect the photosynthetic outcome. To evaluate such an effect, we experimentally studied the optical response of hydrogels containing algal aggregates and developed optical simulations to study the resultant light intensity profiles. The simulations are validated experimentally via transmittance measurements using an integrating sphere and aggregate volume analysis with confocal microscopy. Specifically, the heterogeneous distribution of cell aggregates in a hydrogel matrix can increase light penetration while alleviating photoinhibition more effectively than in a flat biofilm. Finally, we demonstrate that light harvesting efficiency can be further enhanced with the introduction of scattering particles within the hydrogel matrix, leading to a four-fold increase in biomass growth. Our study, therefore, highlights a new strategy for the design of spatially efficient photosynthetic living materials that have important implications for the engineering of future algal cultivation systems.