Diabetic wounds face challenges like infection, prolonged inflammation, and poor vascularization. To address these, we developed an injectable hydrogel for diabetic wound dressing by grafting palmitoyl tetrapeptide-7 (Pal-7) onto chitosan (CS) to form CS/Pal-7 (CP7). Glutaraldehyde (GA) was used to enhance crosslinking between CS, creating the CP7 hydrogel. The hydrogel showed rapid gelation, good mechanical properties, biocompatibility, and strong antibacterial effects. Additionally, stem cells derived from human deciduous teeth (SHED) were loaded into the CP7 hydrogel to form SHED@CP7. This complex promoted human umbilical vein endothelial cell (HUVEC) migration and tube formation, aiding angiogenesis, and induced macrophage polarization toward the M2 phenotype, exerting anti-inflammatory effects. In streptozotocin-induced diabetic mouse wounds, SHED@CP7 significantly improved wound healing with over 95 % wound closure, increased collagen deposition, and reduced tumor necrosis factor-α (TNF-α) expression by approximately 75 % and Interleukin-6 (IL-6) expression by around 81 %. It also increased Interleukin-10 (IL-10) expression by approximately 58 %, modulating the inflammatory microenvironment for regeneration. Moreover, SHED@CP7 enhanced angiogenesis, as shown by a 69 % increase in endothelial cell marker CD31 staining, supporting faster wound healing. These results highlight the potential of SHED@CP7 as an effective treatment for diabetic wounds.