Objectives Patients with serious injury need special care and treatment to control the infection, as wound sepsis is one of the major causes of death. Silver sulfadiazine (SSD) is widely used as an antimicrobial agent which promotes healing and re-epithelialization. However, due to certain drawbacks such as inflammation and cytotoxicity, the need for novel drug delivery modality emerges. The objective of this study was to develop natural polymeric (chitosan and gelatin) hydrogel sponges containing SSD and evaluate its efficacy in wound healing using animal models. Methods SSD containing hydrogel sponges were prepared by solvent casting technique. Scanning electron microscopy (SEM) and Differential scanning calorimetry (DSC) were used to evaluate morphological characteristics of the hydrogel sponges. Anti-thrombogenic property, drug release studies, drug release kinetics, antimicrobial property, and wound healing effect were also studied in detail. Results The optimized batch of hydrogel sponges (CG4) consists of 1% SSD wt., 10% wt. Gelatin, 1% wt. Chitosan and honey 7.5% wt. as plasticizer. At the 12th hour, in vitro and ex vivo drug release was found to be 76.994±0.67% and 24.22±0.57% respectively. CG4 batch had enhanced in vitro antimicrobial activity as compared to conventional marketed cream. The developed SSD hydrogel sponges showed a faster rate of wound healing as compared to a marketed cream. Animals treated with CG4 formulation showed complete angiogenesis and re-epithelialization by 8th day, whereas 12 days were required for complete wound healing with marketed cream. Conclusions The prepared hydrogel sponges can serve as a potential alternative for wound healing dressing as compared to the marketed product.