Mesenchymal stem cell (MSC) transplantation has emerged as a promising strategy for the treatment of acute kidney injury (AKI). However, MSC-based therapies are limited by their low cell retention and reduced survival rates at the site of injury. YIGSR (Tyr-Ile-Gly-Ser-Arg) and RGD (Arg-Gly-Asp) peptides derived from the integral components of the extracellular matrix, laminin, and fibronectin, can provide structural support and a suitable microenvironment for MSCs. As their individual effect is inadequate, we conjugated the YIGSR and RGD peptides to form a novel YIGSRGD peptide. We speculated that the conjugated peptide could be more efficient in promoting the survival and therapeutic efficacy of MSCs than the individual peptides. Moreover, to provide a conducive microenvironment for MSCs, we covalently linked biocompatible biotin to a D-amino acid (^DF), which conferred resistance against enzymatic degradation. This increased the stability of YIGSRGD as a functional scaffold and led to the development of a novel, bioactive and biocompatible Biotin-^DFYIGSRGD hydrogel. The survival of MSCs was monitored using bioluminescence imaging. The roles of the integrin α2β1 and PI3K/AKT pathway in the secretion of important curative cytokines, such as, HGF, VEGFa, and IL-10 were elucidated by silencing them. Results showed that the Biotin-^DFYIGSRGD hydrogel prolonged survival and augmented the paracrine function of MSCs, thereby enhancing their anti-apoptotic and anti-inflammatory effects on the damaged kidney. These findings indicate that the proposed hydrogel can enhance the therapeutic effects and applicability of MSCs via the YIGSRGD/integrin α2β1/PI3K/AKT axis to promote kidney repair in AKI.