In this work we use a multi-technique approach to gain new insights into the effects of trehalose on the volume phase transition of poly(N-isopropylacrylamide) (PNIPAM) microgels, a model synthetic biomimetic system. By dynamic light scattering the temperature-dependent microgel hydrodynamic volume is monitored, while Raman spectroscopy and molecular dynamics simulations explore at the molecular scale changes of solvation and dynamics across the transition. At 0.72 M trehalose concentration the phase transition temperature is lowered by ≈ 10 K, with a concomitant decrease of transition enthalpy not compensated by a corresponding reduction in transition entropy. In water-trehalose solution the microgel particles are ≈ 20% more expanded than in pure water, keeping unchanged their thermal contraction, swelling capacity, and the amount of absorbed water. Strongly hydrated trehalose molecules mainly develop water-mediated interactions with PNIPAM, thus preserving the polymer hydration state both before and after the transition. However, the presence of trehalose deeply impacts on the dynamics of the system, with a drastic slowing down of PNIPAM motions and of its hydration shell. Our investigation reveals a coherent picture in which trehalose sustains hydration and favors, both thermodynamically and kinetically, the collapsed conformation of the microgel, by inhibiting local motions of polymer residues and water.