The incorporation of nanomaterials in hydrogels (hydrated networks of crosslinked polymers) has emerged as a useful method for generating biomaterials with tailored functionality. With the available engineering approaches it is becoming much easier to fabricate nanocomposite hydrogels that display improved performance across an array of electrical, mechanical, and biological properties. In this review, we discuss the fundamental aspects of these materials as well as recent developments that have enabled their application. Specifically, we highlight synthesis and fabrication, and the choice of nanomaterials for multifunctionality as ways to overcome current material property limitations. In addition, we review the use of nanocomposite hydrogels within the framework of biomedical and pharmaceutical disciplines.