A prominent research topic in contemporary advanced functional materials science is the production of smart materials based on polymers that may independently adjust their physical and/or chemical characteristics when subjected to external stimuli. Smart hydrogels based on poly(N-isopropylacrylamide) (PNIPAM) demonstrate distinct thermoresponsive features close to a lower critical solution temperature (LCST) that enhance their capability in various biomedical applications such as drug delivery, tissue engineering, and wound dressings. Nevertheless, they have intrinsic shortcomings such as poor mechanical properties, limited loading capacity of actives, and poor biodegradability. Formulation of PNIPAM with diverse functional constituents to develop hydrogel composites is an efficient scheme to overcome these defects, which can significantly help for practicable application. This review reports on the latest developments in functional PNIPAM-based smart hydrogels for various biomedical applications. The first section describes the properties of PNIPAM-based hydrogels, followed by potential applications in diverse fields. Ultimately, this review summarizes the challenges and opportunities in this emerging area of research and development concerning this fascinating polymer-based system deep-rooted in chemistry and material science.