Oxidants play a significant role in causing oxidative stress in the body, which contributes to the development of diseases. Rutin—a powerful antioxidant—may be useful in the prevention and treatment of various diseases by scavenging oxidants and reducing oxidative stress. However, low solubility and oral bioavailability have restricted its use. Due to the hydrophobic nature of rutin, it cannot be easily loaded inside hydrogels. Therefore, first rutin inclusion complexes (RIC) with hydroxypropyl-β-cyclodextrin (HP-βCD) were prepared to improve its solubility, followed by incorporation into xanthan gum-based (hydroxypropyl methylcellulose-grafted-2-acrylamido -2-methyl-1-propane sulfonic acid) hydrogels for controlled drug release in order to improve the bioavailability. Rutin inclusion complexes and hydrogels were validated by FTIR, XRD, SEM, TGA, and DSC. The highest swelling ratio and drug release occurred at pH 1.2 (28% swelling ratio and 70% drug release) versus pH 7.4 (22% swelling ratio, 65% drug release) after 48 h. Hydrogels showed high porosity (94%) and biodegradation (9% in 1 week in phosphate buffer saline). Moreover, in vitro antioxidative and antibacterial studies (Staphylococcus aureus, Pseudomonas aeruginosa, and Escherichia coli) confirmed the antioxidative and antibacterial potential of the developed hydrogels.