Hydrogel‐forming microneedles are constructed from or coated with polymeric, hydrophilic materials that swell upon insertion into the skin. Designed to dissolve or disintegrate postinsertion, these microneedles can deliver drugs, vaccines, or other therapeutics. Recent advancements have broadened their application scope to include the collection, transport, and extraction of dermal interstitial fluid (ISF) for medical diagnostics. This review presents a brief introduction to the characteristics of dermal ISF, methods for extraction and sampling, and critical assessment of the state‐of‐the‐art in hydrogel‐forming microneedles for ISF diagnostics. Key factors are evaluated including material composition, swelling behavior, biocompatibility, and mechanical strength necessary for effective microneedle performance and ISF collection. The review also discusses successful examples of dermal ISF assays and microneedle sensor integrations, highlighting notable achievements, identifying research opportunities, and addressing challenges with potential solutions. Despite the predominance of synthetic hydrogels in reported hydrogel‐forming microneedle technologies due to their favorable swelling and gelation properties, there is a significant variety of biopolymers and composites reported in the literature. The field lacks consensus on the optimal material, composition, or fabrication methods, though emerging evidence suggests that processing and fabrication techniques are critical to the performance and utility of hydrogel‐forming microneedles for ISF diagnostics.