Fabricating an organic-inorganic nanocomposite hydrogel platform with antibacterial, anti-inflammatory, and osteoinductive properties that mimic bone extracellular matrix composition is decisive for guiding bone development in orthopedic practice. Despite significant progress in developing hydrogels for tissue repair, little attention has been paid to replicating the natural bone ECM microenvironments and addressing the importance of anti-inflammatory agents during osteogenesis. Herein, we developed ciprofloxacin and dexamethasone loaded strontium (Sr) and/or iron (Fe) substituted hydroxyapatite (HAp) nanomaterials precipitated in collagen (Col) to construct a multifunctional bioactive nanocomposite hydrogel platform to prevent inflammation and bacterial adhesion, leading to augmenting bone development in the defect site. The fabricated nanocomposite hydrogels (Sr:HAp-Col, Fe:HAp-Col, and Sr/Fe:HAp-Col) were physicochemically characterized and demonstrated high loading and prolonged drug release, and excellent antibacterial activity against Gram-positive and Gram-negative bacteria. In in vitro experiments, the Sr/Fe:HAp-Col sample exhibited enhanced bioactivity against the preosteoblast MC3T3-E1 cell line, with high alkaline phosphatase and bone-like inorganic calcium deposition, as well as increased gene expression of osteogenesis-related differentiation markers, including OPN, OCN, and RUNX2. Furthermore, in vivo experiments revealed that the Sr/Fe:HAp-Col matrix degraded over time by controlling the release of ions into the body, without causing acute inflammation at the implanted site or in the blood serum, or in the internal organs, including the heart, lungs, liver, and kidney of the Sprague-Dawley rat model. The micro-CT scan and histological examination showed high bone mineral density and more mature bone formation at the nanocomposite hydrogel implanted site associated with the ColMA hydrogel in the femur defect of the rat model. The strategy of applying collagen hydrogel supplemented with HAp to bone regeneration is promising due to its ability to mimic the natural bone ECM. Overall, the developed bioactive nanocomposite hydrogel may have great potential not only in bone regeneration but also in repairing nonunion-infected defects of other tissues.