Multifunctional hydrogels offer a seemingly efficient system for delivery of drugs and bioimaging modalities. The present study deals with the facile development of chitosan-based hydrogel formulation composed of highly fluorescent carbon dots (CDs) and loaded with a model anticancer drug, 5-Fluorouracil (5-FU). Herein, CDs were embedded firmly within the hydrogel matrices (CD-HY) via non-covalent interactions during the ionic cross-linking reaction. Furthermore, these hydrogels could effectively encapsulate 5-FU through hydrophobic interactions to form 5-FU@CD-HY. In this way, it was possible to combine the merits of both CDs and 5-FU on a common platform for monitoring the cellular uptake as well as therapeutic effects. Field emission scanning electron microscopy (FE-SEM), transmission electron microscopy (TEM), Fourier transform infrared spectroscopy (FTIR), thermogravimetric analysis (TGA) illustrated the porous nature and formation of 5-FU@CD-HY. Besides, functional characteristics of 5-FU@CD-HY such as surface area, mechanical strength, swelling behavior and drug release were investigated. In vitro studies revealed the multifunctional aspects of 5-FU@CD-HY in monitoring the cellular uptake and inflicting apoptosis in A549 cells. Green fluorescence of CDs in 5-FU@CD-HY aided the qualitative and quantitative assessment of cellular uptake. In addition to this, the fluorescence of CDs could be used to detect apoptosis instigated by 5-FU, eliminating the need for multiplex dyes. Induction of apoptosis in 5-FU@CD-HY treated cells was evidenced by changes in cell cycle distributions and visualization of characteristic apoptotic bodies through FE-SEM. Apoptotic gene expression studies further elucidate the molecular mechanism involved in eliciting apoptosis. Thus, hydrogels mediated integration of fluorescent CDs with chemotherapeutic agents provides a new dimension for the potential use of hydrogels in cancer theranostics.