The capacity to quickly regenerate or augment bone lost as a result of resorption is crucial to ensure suitable application of prosthetics for restoring masticatory function. Calcium sulfate hemihydrate (CS)-based bone graft substitute composites containing poly(β-amino ester) (PBAE) biodegradable hydrogel particles were developed to act as a ‘tenting’ barrier to soft tissue infiltration, potentially providing adequate space to enable vertical bone regeneration. CS has long been recognized as an osteoconductive biomaterial with an excellent reputation as a biocompatible substance. Composite samples were fabricated with varying amounts (1 or 10 wt%) and sizes (53–150 or 150–250 µm) of gel particles embedded in CS. The swelling and degradation rates of PBAE gels alone were rapid, resulting in complete degradation in less than 24 hours, an important characteristic to aid in controlled release of drug. MicroCT images revealed a homogeneous distribution of gel particles within the CS matrix. All CS samples degraded via surface erosion, with the amount of gel particles (i.e., 10 wt% gel particles) having only a small, but significant, effect on the dissolution rate (4% vs. 5% per day). Compression testing determined that the amount, but not the size, of gel particles had a significant effect on the overall strength of the composites. As much as a 75% drop in strength was seen with a 10 wt% loading of particles. A pilot study using PBAE particles loaded with the multipotential drug curcumin demonstrated sustained release of drug from CS composites. By adjusting the amount and/or size of the biodegradable gel particles embedded in CS, mechanical strength and degradation rates of the composites, as well as the drug release kinetics, can be tuned to provide sufficient, multi-functional ‘space-making’ bone grafting substitutes.