Lemongrass oil (LGO) is a volatile oil extracted from the leaves of Cymbopogon citratus that has become one of the most important natural oils in the pharmaceutical industry because of its diverse pharmacologic and clinical effects. However, LGO suffers from low aqueous solubility, which could lead to a reduced effect. Moreover, the instability of its major active constituent, citral, could lead to volatilization, reaction with other formulation ingredients, and consequently, skin irritation. To surmount these problems, this research aims to formulate lemongrass-loaded ethyl cellulose nanosponges with a topical hydrogel with an enhanced antifungal effect and decreased irritation. The minimal inhibitory concentration and minimal fungicidal concentration of LGO against Candida albicans strain ATC 100231, determined using the broth macrodilution method, were found to be 2 and 8 μL/mL, respectively. The emulsion solvent evaporation technique was used for the preparation of the nanosponges. The nanosponge dispersions were then integrated into carbopol hydrogels (0.4%). Nine formulations were prepared based on a 32 full factorial design employing the ethyl cellulose:polyvinyl alcohol ratio and stirring rate as independent variables. The prepared formulations were evaluated for particle size, citral content, and in vitro release. Results revealed that all the nanosponge dispersions were nanosized, with satisfactory citral content and sustained release profiles. Statistical analysis revealed that both ethyl cellulose:polyvinyl alcohol ratio and stirring rate have significant effects on particle size and percentage released after 6 hours; however, the effect of the stirring rate was more prominent on both responses. The selected hydrogel formulation, F9, was subjected to surface morphological investigations, using scanning and transmission electron microscopy, where results showed that the nanosponges possess a spherical uniform shape with a spongy structure, the integrity of which was not affected by integration into the hydrogel. Furthermore, the selected formulation, F9, was tested for skin irritation and antifungal activity against C. albicans, where results confirmed the nonirritancy and the effective antifungal activity of the prepared hydrogel.