A novel biocompatible polysaccharide-based self-healing hydrogel, CEC-l-OSA-l-ADH hydrogel ("l" means "linked-by"), is developed by exploiting the dynamic reaction of N-carboxyethyl chitosan (CEC) and adipic acid dihydrazide (ADH) with oxidized sodium alginate (OSA). The self-healing ability, as demonstrated by rheological recovery, macroscopic observation, and beam-shaped strain compression measurement, is attributed to the coexistence of dynamic imine and acylhydrazone bonds in the hydrogel networks. The CEC-l-OSA-l-ADH hydrogel shows excellent self-healing ability under physiological conditions with a high healing efficiency (up to 95%) without need for any external stimuli. In addition, the CEC-l-OSA-l-ADH hydrogel exhibits good cytocompatibility and cell release as demonstrated by three-dimensional cell encapsulation. With these superior properties, the developed hydrogel holds great potential for applications in various biomedical fields, e.g., as cell or drug delivery carriers.