Osteoarthritis (OA) is a degenerative joint disease that presents an increasing public health burden as global populations age. Current pharmacologic treatments, such as nonsteroidal anti-inflammatory drugs (NSAIDs) and glucocorticoids, primarily alleviate symptoms but fail to prevent structural degeneration. To address this therapeutic gap, biomaterial-based tissue scaffolds have been developed to provide mechanical support while delivering therapeutic signals. Conventional scaffolds composed of bioceramics or polymers provide mechanical strength and stability but suffer from poor biocompatibility, limited processability, and inadequate integration with native cartilage. Hydrogels have emerged as promising alternatives owing to their extracellular matrix (ECM)-mimicking properties, biocompatibility, and injectability. However, pristine hydrogels often suffer from insufficient mechanical strength and rapid degradation, limiting their long-term effectiveness. Composite hydrogels, including cell-laden or nanocomposite systems, have been explored to address these limitations. Although these strategies could enhance regeneration, mechanical integrity, or drug delivery, each approach alone remains insufficient for comprehensive OA treatment. Recent advances in cell-nanocomposite hydrogels, which integrate therapeutic cells and nanoparticles within a hydrogel matrix, offer synergistic improvements across regeneration, controlled drug delivery, and mechanical support. These systems can also enhance cell viability and differentiation through growth factor-mediated signaling, thereby supporting superior cartilage regeneration. This review traces the evolution of functional composite hydrogels for OA treatment, detailing their design strategies and therapeutic potential. It also outlines the current challenges and future directions for translating cell-nanocomposite hydrogels into clinical practice.