This paper reports a monolithic, force-feedback MEMS (microelectomechanical systems) microgripper and its application to micro-scale compression testing of swollen hydrogel microcapsules during manipulation in an aqueous environment. The single-chip microgripper uses an electrothermal microactuator for grasping and integrates two capacitive force sensors, one for contact detection (force resolution: 38.5nN) and the other for gripping force measurements (force resolution: 19.9nN). Using the force-feedback microgripper and a mechanics model for assessing large deformation data, the system with a 19.9nN force resolution and a 20.5nm resolution for material deformation measurement quantified Young's modulus values of individual alginate microcapsules (15-25microm) with 1%, 2%, and 3% chitosan coating, demonstrating an easy-to-operate, accurate compression testing technique for mechanically characterizing soft, micrometer-sized biomaterials.