Hydrogels find widespread applications in biomedical engineering due to their hydrated environment and tunable properties (e.g., mechanical, chemical, biocompatible) similar to the native extracellular matrix (ECM). However, challenges still exist regarding utilizing hydrogels in applications such as engineering 3D tissue constructs and active targeting in drug delivery, due to the lack of controllability, actuation, and quick-response properties. Recently, magnetic hydrogels have emerged as a novel biocomposite for their active response properties and extended applications. In this review, the state-of-the-art methods for magnetic hydrogel preparation are presented and their advantages and drawbacks in applications are discussed. The applications of magnetic hydrogels in biomedical engineering are also reviewed, including tissue engineering, drug delivery and release, enzyme immobilization, cancer therapy, and soft actuators. Concluding remarks and perspectives for the future development of magnetic hydrogels are addressed.