Leveraging sustainable packaging resources in the circular economy framework has gained significant attention in recent years as a means of minimizing waste and mitigating the negative environmental impact of packaging materials. In line with this progression, bio-based hydrogels are being explored for their potential application in a variety of fields including food packaging. Hydrogels are three-dimensional, hydrophilic networks composed of a variety of polymeric materials linked by chemical (covalent bonds) or physical (non-covalent interactions) cross-linking. The unique hydrophilic nature of hydrogels provides a promising solution for food packaging systems, specifically in regulating moisture levels and serving as carriers for bioactive substances, which can greatly affect the shelf life of food products. In essence, the synthesis of cellulose-based hydrogels (CBHs) from cellulose and its derivatives has resulted in hydrogels with several appealing features such as flexibility, water absorption, swelling capacity, biocompatibility, biodegradability, stimuli sensitivity, and cost-effectiveness. Therefore, this review provides an overview of the most recent trends and applications of CBHs in the food packaging sector including CBH sources, processing methods, and crosslinking methods for developing hydrogels through physical, chemical, and polymerization. Finally, the recent advancements in CBHs, which are being utilized as hydrogel films, coatings, and indicators for food packaging applications, are discussed in detail. These developments have great potential in creating sustainable packaging systems.