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Diabetes is emerging as a significant health and societal concern globally, impacting both young and old populations. In individuals with diabetic foot ulcers (DFUs), the wound healing process is hindered due to abnormal glucose metabolism and chronic inflammation. Minor injuries, blisters, or pressure sores can develop into chronic ulcers, which, if left untreated, may lead to serious infections, tissue necrosis, and eventual amputation. Current management techniques include debridement, wound dressing, oxygen therapy, antibiotic therapy, topical application of antibiotics, and surgical skin grafting, which are used to manage diabetic wounds and foot ulcers. However, the main challenge in DFU is developing wound care systems that effectively address the sequential phases of diabetic wound healing, including hemostasis, infection, inflammation, and proliferative/remodeling phases. Hydrogels have emerged as a promising solution for treating DFUs due to their unique properties of providing a suitable wound-healing environment. This review mainly explores the dysregulated phases of wound healing in relation to the pathophysiology of DFU. As a treatment strategy, we discuss the recent advancements in hydrogel-based applications for managing DFU. Recent innovations, including self-healing hydrogels, stimuli-responsive hydrogels, nanocomposite hydrogels, bioactive hydrogels, and 3D-printed hydrogels, demonstrate enhanced therapeutic potential, improving patient outcomes. Additionally, we discuss the applicability of various types of hydrogels to each phase of wound healing in DFU treatment.