Biomolecular hydrogels are promising scaffolds for biomedical applications ranging from controlled drug release to personalized medicine. However, existing macromolecular scaffolds for nitric oxide (NO) release face several challenges, such as a low payload capacity, rapid release, and limited biocompatibility. Here, we present the design of short peptide derivatives as low-molecular-weight gelators that spontaneously self-assemble into nanofibrous hydrogels under basic aqueous conditions. Hydrogen bonding and hydrophobic interactions are central driving forces for the assembly process and contribute to tuning the mechanical properties. The nanofibrous hydrogel exhibits secondary structure properties, and the nanofibers show crystalline behavior. The terminal primary amines in the peptide building blocks could act as nucleophiles, facilitating the endogenous generation of NO gas, thus making the hydrogel scaffold a catalyst. The nanofibrous hydrogels can sequester NO from an external source that could be trapped in the interstices of the entangled fibrous networks. Simultaneously, it demonstrates anti-inflammatory effects in activated murine macrophages. This designer peptide hydrogel for NO generation and encapsulation provides fundamental insights into the design of peptide biomaterials for biomedical applications.