Hydrogels are promising candidates for drug delivery due to their unique properties such as biocompatibility, tunable mechanical properties, and stimulus-responsive behavior. This review highlights hydrogel preparation techniques, drug encapsulation and release techniques, applications, challenges, and future prospects in drug delivery. The plan involves a combination of physical and chemical connections as well as hybrid methods. All of these are advantageous in terms of simplicity, potency and control of drug release kinetics. Drug encapsulation can be achieved by physical or chemical methods, and drug release methods include diffusion control, swelling control, degradation control, and stimulus-responsive release. Hydrogels have applications in many fields such as topical drug delivery, wound healing, ophthalmic drug delivery, oral drug delivery, and cartilage engineering. Challenges associated with hydrogel drug delivery include biocompatibility, mechanical properties, drug release control, scale-up, manufacturing, and regulatory approval. Future prospects include the development of advanced hydrogel systems with better properties and the transfer of hydrogel-based drugs from the laboratory to the clinic. To overcome these challenges and realize the full potential of hydrogels for drug delivery, collaboration between academia, industry, and regulatory agencies is crucial.