The constant and noninvasive tracking of the distribution and degradation of engineered hydrogel scaffolds using fluorescent probes is considered to be one of the important research studies. Conventional fluorophores were simply mixed into hydrogels by physical doping, and they suffered from photoinstability or UV-vis light excitation, which usually led to the potential leak of the fluorescent tag and imprecise tracking results. In this article, upconversion nanopartides, NaGdF4:Yb3+,Er3+@NaGdF4 (UCNPs) with near-infrared light (NIR) excitation, were synthesized and were coated with polydopamine (PDA). A biodegradable composite hydrogel OSA-I-CMCS-I-UCNPs@PDA ("I" means linked-by") was constructed by the UCNPs@PDA, serving as both the construction unit and NIR-excited fluorescent probe, where carboxymethyl chitosan (CMCS) was used as the cross-linker to chemically cross-link UCNPs@PDA and oxidized sodium alginate (OSA) based on dynamic covalent Schiff-base linkages. It is demonstrated that the composite hydrogels possess enhanced mechanical strength, excellent self-healing capacity, injectable performance, and good biocompatibility with the tissue. In addition, the composite hydrogels possess a deep penetrating ability from UCNPs@PDA in vitro through about 10 mm thick chicken strips. A mimetic lysozyme biodegradation test was performed for 108 h in vitro for evaluating the feasibility and accuracy of UCNPs@PDA in tracking the hydrogel degradation. The degradation signals were obtained by the decrease in fluorescence intensity, which were well consistent with the weight changes in composite hydrogels, suggesting the accuracy of the UCNPs@PDA in consecutively monitoring the hydrogel degradation in vitro. With these superior properties, the composite hydrogels are expected to be promising candidates for various biomedical fields, for example, as tissue engineering or delivery carriers in vivo.