Mupirocin nanoparticle-loaded hydrogel (MLH) was successfully developed. This study focused on the safety of cell lines and the biocompatibility of MLH for wound healing in rat models. MLH was assessed by an analysis of cytotoxicity and the secretion of inflammatory cytokines in cell lines. The cytocompatibility of MLH was compared with mupirocin ointment on full-thickness burn wounds in rats. The results indicated that MLH and blank hydrogel had no toxicity to human epidermal keratinocytes and human fibroblast cells. MLH inhibited lipopolysaccharide (LPS) activity in macrophage-like cells resulting in low nitric oxide production and reduced inflammatory cytokine production (interleukin (IL)-1β) compared with a positive control (LPS only). In burn wounds, MLH and hydrogel healed the wound better than the other groups determined by wound contraction, reduced secretion, and the generation of new blood vessels, as well as promotion of hair follicle cells. Better granulation tissue proliferation, less necrosis, and a lower degree of inflammation were found in the MLH and blank hydrogel than in the mupirocin ointment. The hydrogel group reduced the macrophages (CD68) on day 14 at the edge of the wound. On day 28, T cells (CD3), B cells (CD20), and CD68+ cells were concentrated in the deeper subcutaneous tissue. Additionally, the transforming growth factor β1 (TGF-β1) concentration and matrix prometalloproteinase-2/tissue inhibitor of metalloproteinases-2 ratio in the MLH and hydrogel groups were less than those in the other groups. The MLH formulation was safe and effective in burn wound healing. Therefore, MLH formulations are promising candidates for further evaluation in clinical trials.