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Biomaterials have long been the focus of research and hydrogels are representatives thereof. Hydrogels have attracted much attention in the medical sciences, especially as a candidate drug-carrier. Mesenchymal stem cells (MSC) and MSC-derived secretome are a promising therapeutic method, owing to the intrinsic therapeutic properties thereof. The low cell retention and poor survival rate of MSCs make further research difficult, which is a problem that hydrogel encapsulation largely solved. In this review, safety and feasibility of hydrogel-encapsulated MSCs, the improvement of the survival, retention, and targeting, and the enhancement of their therapeutic effect by hydrogels were studied. The status of the hydrogel-encapsulated MSC secretome was also discussed.