Genitourinary syndrome of menopause (GSM) affects a significant percentage of postmenopausal women and manifests as vaginal dryness, irritation, and urinary discomfort, typically treated with vaginal estrogens. Hydrogels are preferred over creams due to their superior comfort and mucoadhesive properties. This study introduces a novel vaginal gel formulation containing hydroxyethyl cellulose (HEC) and estriol-hydroxypropyl-β-cyclodextrin complex (E3-HPBCD) for the treatment of GSM. The estriol (E3) release profile of the gel was evaluated using a Franz diffusion cell system, and its permeability was tested on reconstructed human vaginal epithelium. Biocompatibility was assessed using (3-[4,5-dimethylthiazol-2-yl]-2,5-diphenyltetrazolium bromide) (MTT), lactate dehydrogenase (LDH) assays, and real-time cell analysis (RTCA) on human skin keratinocyte (HaCaT) cells, which showed increased cell viability and no obvious cytotoxicity. The results indicated that efficient E3 release and satisfactory epithelial permeability with HPBCD provide the bioavailability of E3. These results suggest the potential of the gel as a biocompatible and effective alternative for the treatment of GSM. Further studies are required to assess the long-term safety and clinical efficacy.