Living biological systems, ranging from single cells to whole organisms, can sense, process information, and actuate in response to changing environmental conditions. Inspired by living biological systems, engineered living cells and nonliving matrices are brought together, which gives rise to the technology of engineered living materials. By designing the functionalities of living cells and the structures of nonliving matrices, engineered living materials can be created to detect variability in the surrounding environment and to adjust their functions accordingly, thereby enabling applications in health monitoring, disease treatment, and environmental remediation. Hydrogels, a class of soft, wet, and biocompatible materials, have been widely used as matrices for engineered living cells, leading to the nascent field of engineered living hydrogels. Here, the interactions between hydrogel matrices and engineered living cells are described, focusing on how hydrogels influence cell behaviors and how cells affect hydrogel properties. The interactions between engineered living hydrogels and their environments, and how these interactions enable versatile applications, are also discussed. Finally, current challenges facing the field of engineered living hydrogels for their applications in clinical and environmental settings are highlighted.