A new unique dual-structure hydrogel composed of nanostructures of amphiphilic chitosan (CHC) dispersed in a sodium alginate matrix (SAL) is presented. The successful creation of the composite is based on combining chitosan and sodium alginate without precipitation or agglomeration, which has not been previously reported. The CHC/SAL composite gels present a number of properties making them attractive for biomedical applications, in particular as implantable depot gels or in dermal applications. The gels are shown to form rapidly upon exposure of the combination solution to Ca2+ containing gelation medium. The formed gels have storage moduli similar to soft tissue and display shear reversible gelation with fast recovery of mechanical properties, in addition to self-healing capability at certain compositions. The gels exhibit moderate swelling in deionized water and low swelling in simulated body fluid and cell culture media. The drug release from the composite gels is demonstrated using the hydrophobic drug all-trans retinoic acid, which is used in cancer and skin disorder therapies. The drug release initially occurs through a Fickian mechanism for a fraction of the loaded drug, where the fraction released during this process depends on release media and gel composition. A large fraction of the loaded drug can be retained for long term depot drug delivery. Furthermore, the CHC/SAL gels are determined to have low toxicity and skin irritation.