Healing of diabetic wounds present a big challenge due to insufficient vascular supply and bacterial infection. We developed chitosan based biodegradable polymeric hydrogel containing silver nanoparticles (AgNPs) as antimicrobial agent and calcium alginate nanoparticles (Ca-AlgNps) as hemostatic agent to address this problem. The prepared Chitosan/Ca-AlgNps/AgNPs hydrogel showed broad spectrum antimicrobial properties against both Gram negative (E. coli, P. aeruginosa) and Gram positive (B. subtilis, S. aureus) bacteria. Taken into account the blood as a vital material containing various circulatory fibrocytes, growth factors, cytokines, platelets and macrophages etc., we incorporated the fresh blood of the same animal to the prepared Chitosan/Ca-Alg Nps/AgNPs hydrogel. In-vivo animal studies of Chitosan/Ca-AlgNps/AgNPs hydrogel and blood mixed Chitosan/Ca-AlgNps/AgNPs hydrogel exhibit 83.5 ± 4.4% and 99.8 ± 2.0% closure of wound respectively, on day 15 as compared to 41.5 ± 3.2% in diabetic control and 60.3 ± 2.2% in commercially available wound healing cream, Silverex Heal. The incorporation of fresh blood to the prepared hydrogel has advantage in terms of supplying growth factors, platelets, circulatory fibrocytes and cytokines which further enhanced the wound healing mechanism in diabetic rats. This work opens a novel idea to formulate hydrogels based dressings for diabetic wound healing.