Stem cell-based therapy is a promising approach for the treatment of a myriad of diseases and injuries. However, the low rate of cell survival and the uncontrolled differentiation of the injected stem cells currently remain as the key challenges in advancing stem cell therapeutics. Hydrogels are biomaterials that are potentially highly effective candidates for scaffold systems for stem cells and other molecular encapsulation approaches to target in vivo delivery. Hydrogel-based strategies can potentially address several current challenges in stem cell therapy. In the current review, we present a concise overview of the recent advances in applications of hydrogels in stem cell therapies, with a focus particularly on the recent advances in the design and approaches for application of hydrogels in tissue engineering. The capability of hydrogels to either enhance the function of the transplanted stem cells by promoting their controlled differentiation or enhance the recruitment of endogenous adult stem cells to the injury site for repair is also reviewed. Finally, the importance of impacts and the desired relationship between the scaffold system and the encapsulated stem cells are discussed.