Osteoarthritis (OA) is a chronic and inflammatory disease with no effective regenerative treatments to date. The therapeutic potential of mesenchymal stem cells (MSCs) remains to be fully explored. Intra-articular injection of these cells promotes cartilage protection and regeneration by paracrine signaling and differentiation into chondrocytes. However, joints display a harsh avascular environment for these cells upon injection. This phenomenon prompted researchers to develop suitable injectable materials or systems for MSCs to enhance their function and survival. Among them, hydrogels can absorb a large amount of water and maintain their 3D structure but also allow incorporation of bioactive agents or small molecules in their matrix that maximize the action of MSCs. These materials possess advantageous cartilage-like features such as collagen or hyaluronic acid moieties that interact with MSC receptors, thereby promoting cell adhesion. This review provides an up-to-date overview of the progress and opportunities of MSCs entrapped into hydrogels, combined with bioactive/small molecules to improve the therapeutic effects in OA treatment.