Diabetic wounds remain a major clinical challenge owing to persistent dysregulation of the wound microenvironment, which substantially limits the effectiveness of conventional therapies. In recent years, multifunctional hydrogels have emerged as promising platforms for diabetic wound management, attributed to their excellent biocompatibility, tunable physicochemical properties, and unique capacity to actively remodel pathological microenvironments through integrated therapeutic functions. This comprehensive narrative review provides an in-depth synthesis of the pathogenesis and current therapeutic strategies for diabetic wounds, with a particular focus on recent advances in multifunctional hydrogels, as well as their classification, design principles, mechanisms of action, and translational potential. Furthermore, emerging directions are discussed as promising approaches for next-generation therapies, including intelligent closed-loop systems, interdisciplinary technological convergence, and the integration of bioactive components derived from traditional Chinese medicine. Collectively, these advances are poised to facilitate the transition from passive wound coverage to active microenvironment remodeling, paving the way for precision and personalized diabetic wound care.