Hydrogels have emerged as important soft materials with numerous applications in fields including biomedicine, biomimetic smart materials, and electrochemistry. Because of their outstanding photo-physical properties and prolonged colloidal stability, the serendipitous findings of carbon quantum dots (CQDs) have introduced a new topic of investigation for materials scientists. CQDs confined polymeric hydrogel nanocomposites have emerged as novel materials with integrated properties of the individual constituents, resulting in vital uses in the realm of soft nanomaterials. Immobilizing CQDs within hydrogels has been shown to be a smart tactic for preventing the aggregation-caused quenching effect and also for manipulating the characteristics of hydrogels and introducing new properties. The combination of these two very different types of materials results in not only structural diversity but also significant improvements in many property aspects, leading to novel multifunctional materials. This review covers the synthesis of doped CQDs, different fabrication techniques for nanostructured materials made of CQDs and polymers, as well as their applications in sustained drug delivery. Finally, a brief overview of the present market and future perspectives are discussed.