Diabetic cutaneous ulcers (DCU) are a complication for diabetes patients, mostly occurring in the foot and causing non-healing diabetic foot ulcers. Mesenchymal stem cell (MSC)-based therapy is currently being investigated as a therapeutic avenue for chronic diabetic ulcers. However, poor engraftment, short retention, and low survival still limit the treatment effectiveness. Hydroactive® Gel is a sterile transparent gel made of natural hydrocolloid, which has been widely used for wound management. Whether transplantation of Wharton's jelly mesenchymal stem cells (WJMSCs) encapsulated with Hydroactive® Gel is helpful to diabetic ulcers wound healing remains to be explored. The biocompatibility experiments showed that WJMSCs embedded in Hydroactive® Gel did not influence the cell viability, survival, proliferation, and apoptosis of WJMSCs in vitro. RNA-seq results also implied that Hydroactive® Gel + WJMSCs transplantation activated the "cytokine-cytokine receptor interaction", "mononuclear cell differentiation", "regulation of cell-cell adhesion", and "chemokine receptor activity" to accelerate the inflammatory reaction and epidermis regeneration in diabetic wounds. Histological analysis results demonstrated that Hydroactive® Gel encapsulated WJMSCs transplantation promoted diabetic wound healing and regeneration, indicating improved dermis regeneration, sebaceous gland formation, and type III collagen fiber deposition. Besides, immunohistochemical analysis results showed that Hydroactive® Gel + WJMSCs transplantation also facilitated the transformation of pro-inflammatory M1 macrophages to anti-inflammatory M2 macrophages, cell proliferation, and neovascularization at the wound site. Hydroactive® Gel encapsulation further prolonged the retention time of WJMSCs at the diabetic wound site. Above all, Hydroactive® Gel accelerates WJMSCs-mediated diabetic wound healing by promoting macrophage transformation, facilitating cell proliferation and angiogenesis, and prolonging cell retention time. Our findings may potentially provide a useful therapeutic strategy based on the combination of WJMSCs and biomedical materials for patients with diabetic cutaneous ulcers.