Engineered cyanobacterium Synechococcus elongatus can use light and CO₂ to produce sucrose, making it a promising candidate for use in co-cultures with heterotrophic workhorses. However, this process is challenged by the mutual stresses generated from the multispecies microbial culture. Here we demonstrate an ecosystem where S. elongatus is freely grown in a photo-bioreactor (PBR) containing an engineered heterotrophic workhorse (either β-carotene-producing Yarrowia lipolytica or indigoidine-producing Pseudomonas putida) encapsulated in calcium-alginate hydrogel beads. The encapsulation prevents growth interference, allowing the cyanobacterial culture to produce high sucrose concentrations enabling the production of indigoidine and β-carotene in the heterotroph. Our experimental PBRs yielded an indigoidine titer of 7.5 g/L hydrogel and a β-carotene titer of 1.3 g/L hydrogel, amounts 15-22-fold higher than in a comparable co-culture without encapsulation. Moreover, ¹³C-metabolite analysis and protein overexpression tests indicated that the hydrogel beads provided a favorable microenvironment where the cell metabolism inside the hydrogel was comparable to that in a free culture. Finally, the heterotroph-containing hydrogels were easily harvested and dissolved by EDTA for product recovery, while the cyanobacterial culture itself could be reused for the next batch of immobilized heterotrophs. This co-cultivation and hydrogel encapsulation system is a successful demonstration of bioprocess optimization under photobioreactor conditions.