Large defects in bone tissue due to trauma, tumors, or developmental abnormalities usually require surgical treatment for repair. Numerous studies have shown that current bone repair and regeneration treatments have certain complications and limitations. With the in-depth understanding of bone regeneration mechanisms and biological tissue materials, a variety of materials with desirable physicochemical properties and biological functions have emerged in the field of bone regeneration in recent years. Among them, hydrogels have been widely used in bone regeneration research due to their biocompatibility, unique swelling properties, and ease of fabrication. In this paper, the development and classification of hydrogels were introduced, and the mechanism of hydrogels in promoting bone regeneration was described in detail, including the promotion of bone marrow mesenchymal stem cell differentiation, the promotion of angiogenesis, the enhancement of the activity of bone morphogenetic proteins, and the regulation of the microenvironment of bone regeneration tissues. In addition, the future research direction of hydrogel in bone tissue engineering was discussed.