Objective Wound in diabetes is difficult to heal since it possesses excessive inflammation. The aim of the study was to evaluate wound healing activity of chitosan-based hydrogel containing pyroligneous acid in diabetic animals. Significance Pyroligneous acid, a byproduct of biochar production from palm kernel shell biomass, contained oxygenated compounds which, with extracting enrichment, could promote wound healing. Methods Streptozotocin-induced diabetic male jcl: ICR mice were subjected to create wounds and treat with hydrogel containing pyroligneous extract at dose strengths of 0 (placebo), 100 and 150 μg/g-gel. Commercial gel (Intrasite®) was used as an active comparator. On 3-, 7-, 10- and 14-day post wounding, wound contraction was rated and wound site tissues were collected. The specimens were H&E stained and microscopically examined to evaluate histological responses. The underline wound healing related cytokine and polypeptide expressions were determined using real-time PCR and western blot. Results It was found that the extract accelerated the healing process in a dose-dependent manner where at dose strength of 150 μg/g-gel was as effective as active comparator. It increased gene expression of the cytokine and related proteins in TGF-β/SMAD signaling pathway and may further activate diabetic induced TGF-β downregulation to restore up to the level that healthy skin tissues express. It also enhanced the expressions of Akt, FAK, RhoA and Rac-1 and evidently activated phosphorylation of Akt and FAK. Conclusion The study demonstrated the extract could be a novel biomaterial for healing of such a chronic inflammatory wound as the wound in diabetes.