Position-dependent gene expression in gradients of morphogens is one of the key processes involved in cellular differentiation during development. Here, we study a simple artificial differentiation process, which is based on the diffusion of genetic inducers within one-dimensional arrangements of 50 μm large water-in-oil droplets. The droplets are filled with either bacteria or cell-free gene expression systems, both equipped with genetic constructs that produce inducers or respond to them via expression of a fluorescent protein. We quantitatively study the coupled diffusion-gene expression process and demonstrate that gene expression can be made position-dependent both within bacteria-containing and cell-free droplets. By generating diffusing quorum sensing signals in situ, we also establish communication between artificial cell-free sender cells and bacterial receivers, and vice versa.