This research investigated the application of alginate-collagen hydrogel (ACH) in rat cartilage injury (CI) repair and its related mechanisms through in vitro and in vivo experiments. Alginate solution and modified collagen solution were mixed to prepare the ACH. The obtained samples were characterized and their sustained release properties were determined. L929 mouse fibroblasts were assigned into a blank control group (BC group, untreated), a positive control group (PC group, treated with 6.4% phenol), a negative control group (NC group, treated with tissue culture polystyrene), and an ACH group (treated with ACH). Cell viability was assessed using the MTT assay. Meanwhile, the cytotoxicity of the ACH and its impact on cell proliferation and cell attachment capabilities were analyzed. Thirty 4-week-old specific pathogen-free (SPF) Sprague Dawley (SD) rats were randomly grouped into a chondrocyte group (5 rats, chondrocytes collected and cultured), a cPAGE group (5 rats, chondrocytes treated with ACH), a model group (10 rats, CI model), and a mPAGE group (10 rats, CI model treated with CAH). The influence of CAH on chondrocyte proliferation and the type II collagen (COLII) expression were assessed using the cell counting kit 8 (CCK-8) assay and immunofluorescence staining. Furthermore, the impacts of CAH on chondrocyte tissue and COL-II expression were analyzed using Safranin O-Fast Green (SOFG) staining, the International Cartilage Repair Society (ICRS) score, and COL-II tissue staining. Immunoblotting was utilized to detect the TNF-α, NF-κB, matrix metalloproteinase 13 (MMP-13), and COL-II proteins in cartilage tissue. The results showed that release rate (RR) of the constructed ACH reached over 85% within 72 hours and achieved degradation equilibrium within 5 days with a weight loss (WL) rate of over 60%. L929 fibroblasts culture results showed that the ACH posed no significant cytotoxicity, and cell attachment results were not obviously different from those on tissue culture plates (P >0.05). MTT assay results demonstrated that the ACH exerted no adverse effects on L929 cell proliferation and growth, indicating a good biocompatibility. CCK-8 and COL-II results indicated that chondrocyte proliferation in cPAGE group was much higher in contrast to that in chondrocyte group (P <0.05). Besides, the animal experiments unveiled that in comparison to the CI group, the mPAGE group had more chondrocytes, upregulated COL-II, and higher ICRS scores (P <0.05). MMP-13, NF-κB, and TNF-α were downregulated, and COL-II was upshifted in the mPAGE group, with remarkable differences (P <0.05). In conclusion, ACH exhibited excellent biocompatibility and low cytotoxicity, promoted cell proliferation and growth, facilitated chondrocyte proliferation in rat CI repair, offering a valuable research foundation for CI treatment.