Diabetic wounds (DWs), which are complex and challenging to treat due to delayed healing and incomplete regeneration, pose a significant burden on global healthcare systems. Existing clinical interventions, which mainly comprise debridement, decompression, and wound dressings, have limited efficacy. In addition, DW pathogenesis is complex, with diabetic peripheral neuropathy, diabetic peripheral arterial disease, and diabetic foot infections further complicating wound management. Owing to their unique versatility, tunability, and hydrophilicity, hydrogels show promise in several biomedical applications, including DW management. They can effectively promote DW healing by loading therapeutic substances for on-demand release. Given the distinct physiological milieu of DWs, hydrogels with tailored attributes can be engineered to enable on-demand drug release, optimize the wound microenvironment, and cater to the diverse stages of wound healing. Based on the clinical status and pathophysiological features of DWs, this review explores hydrogel wound dressings with the following effects: hypoglycemic, nerve regeneration, vascular regeneration, anti-infective, and bone repair. Additionally, the strategy for applying hydrogels to DWs has been comprehensively studied to provide a robust theoretical foundation for DW treatment and pave the way for clinical translation.