Organoids can shed light on the dynamic interplay between complex tissues and rare cell types within a controlled microenvironment. Here, we develop gut organoid cocultures with type-1 innate lymphoid cells (ILC1) to dissect the impact of their accumulation in inflamed intestines. We demonstrate that murine and human ILC1 secrete transforming growth factor β1, driving expansion of CD44v6 + epithelial crypts. ILC1 additionally express MMP9 and drive gene signatures indicative of extracellular matrix remodelling. We therefore encapsulated human epithelial–mesenchymal intestinal organoids in MMP-sensitive, synthetic hydrogels designed to form efficient networks at low polymer concentrations. Harnessing this defined system, we demonstrate that ILC1 drive matrix softening and stiffening, which we suggest occurs through balanced matrix degradation and deposition. Our platform enabled us to elucidate previously undescribed interactions between ILC1 and their microenvironment, which suggest that they may exacerbate fibrosis and tumour growth when enriched in inflamed patient tissues.