Two types of chitosan hydrogel systems have been prepared that have a laser damage threshold (LDT) up to 35 times higher than commercial PMMA bulk materials. For these samples, the LDT increases with increasing water content. The mechanism of laser damage and the contribution of water to their high laser damage resistance have been examined. DSC measurements indicate water within the hydrogels exist in various states, each with different laser damage resistance properties. These various states play a key role in determining the LDT by controlling the dissipation of laser energy and providing a mechanism for self-healing. This preliminary research shows that polymer hydrogels have potential for high power laser applications because they combine good mechanical integrity due to the polymer frame and good energy dissipation and healing characteristics due to the molecular mobility of water. These two traits allow for bulk shape-retaining films with high laser damage thresholds and potential reversibility in damage processes.