The implantable cuff electrode is an effective neuroprosthetic device in current nerve tissue engineering. However, biocompatibility and stability are still a serious dispute in terms of in vivo function and continuous monitoring. In this regard, assessing the host's biological response to biomaterials is one of the key factors of chronic implantation. In this article, we analyzed the peripheral nerve specific-biological responses to the application of multi-functional hydrogel-coated electrodes. The surface of the cuff electrode was modified using a multifunctional hydrogel composed of PEG hydrogel, cyclosporin A(CsA)-microsphere(MS) and electrodeposited PEDOT:PSS. Through our approach, we have found that the multifunctional hydrogel coatings improve the neural electrode function, such as peak-to-peak amplitude increase. Additionally, the multifunctional hydrogel coated electrodes exhibited improved biocompatibility, such as reduced apoptotic properties and increased axonal myelination. Furthermore, 12 genes (BDNF, Gfra1, IL-6, Sox 10, S100B, P75 NTR , GAP43, MBP, MPZ, NrCAM, NE-FL, CB1) were upregulated at 5 weeks post-implant. Finally, double immunofluorescence revealed the effect of endocannabinoid system on neuroprotective properties and tissue remodeling of peripheral nerves during cuff electrode implantation. These results clearly confirmed that multifunctional hydrogel coatings could improve electrode function and biocompatibility by enhancing neuroprotective properties, which may provide a valuable paradigm for clinical neurology application.