This study aims to develop a bioactive hydrogel composed of Papaver somniferum extract (PSE) and polyvinyl alcohol (PVA) for enhanced in vivo wound healing applications. The pod-derived PSE was incorporated at varying concentrations (0.25%, 0.5%, and 1.0% w/v) into the PVA matrix via ex situ impregnation to form the PSE-PVA hydrogel. Scanning electron microscopy (SEM) showed a smoother, more organized texture and fiber-like morphology of the PSE-PVA hydrogel. Fourier transform infrared (FTIR) analysis confirmed chemical interactions between PSE and PVA components. The swelling behavior of the PSA-PVA hydrogels showed a concentration-dependent increase in water absorption, reaching a maximum swelling ratio of 86% after 250 min at 1.0% PSE concentration. Antibacterial testing through disc diffusion assay demonstrated formation of clear inhibition zones measuring 16.5 mm against Escherichia coli and 15.2 mm against Staphylococcus aureus at 1.0% PSE-PVA concentration. In vivo wound healing studies showed that the PSE-PVA hydrogel achieved the highest wound closure, reducing wound size by 95% by day 24—compared to 78% with PSE alone and 20% in the untreated control group. Histological analysis showed that wounds treated with 1% PSE-PVA hydrogel exhibited rapid epidermal regeneration, re-epithelialization and granulation. Histology studies confirmed the early formation of hair follicles and sebaceous glands in treated tissues. These findings suggest that PSE-PVA hydrogels are promising candidates for multifunctional wound dressings due to their biocompatibility, antibacterial efficacy, and ability to accelerate tissue regeneration.