Poor cell engraftment and survival after transplantation limited the application of stem cell therapy. Synthetic biomaterials could provide an artificial microenvironment for stem cells, thereby improve cell survival and enhance the therapeutic efficiency of stem cells. We synthesized a hydrogel by conjugating C domain peptide of insulin-like growth factor-1 (IGF-1C) onto chitosan (CS-IGF-1C hydrogel). Human placenta-derived mesenchymal stem cells (hP-MSCs), which constitutively express a red fluorescent protein (RFP) and renilla luciferase (Rluc), were co-transplanted with CS-IGF-1C hydrogel into a murine hindlimb ischemia model. Transgenic mice expressing firefly luciferase (Fluc) under the promoter of vascular endothelial growth factor receptor 2 (VEGFR2-Luc) were used. Dual bioluminescence imaging (BLI) was applied for tracking the survival of hP-MSCs by Rluc imaging and the VEGFR2 signal pathway activation by Fluc imaging. To investigate the therapeutic mechanism of CS-IGF-1C hydrogel, angiographic, real-time PCR, and histological analysis were carried out. CS-IGF-1C hydrogel could improve hP-MSCs survival as well as promote angiogenesis as confirmed by dual BLI. These results were consistent with accelerated skeletal muscle structural and functional recovery. Histology analysis confirmed that CS-IGF-1C hydrogel robustly prevented fibrosis as shown by reduced collagen deposition, along with increased angiogenesis. In addition, the protective effects of CS-IGF-1C hydrogel, such as inhibiting H2O2-induced apoptosis and reducing inflammatory responses, were proved by in vitro experiments. Taken together, IGF-1Cs provides a conducive niche for hP-MSCs to exert pro-mitogenic, anti-apoptotic, and pro-angiogenic effects, as well as to inhibit fibrosis. Thus, the incorporation of functional peptide into bioscaffolds represents a safe and feasible approach to augment the therapeutic efficacy of stem cells.