Injectable chitosan hydrogels have attracted great potential due to sustained-release property and safety. Here, palmityl-acylated glycol chitosan (Pal-GC) was used to generate physically cross-linked hydrogels by virtue of hydrophobic attraction of linear fatty carbons. Glycol chitosan was chemically modified with N-hydroxysuccinimide-activated palmitic acid in dimethylsulfoxide (DMSO) containing dimethylaminopyridine. Through a series of preparation steps of (i) dialysis with DMSO, (ii) addition of palmityl-acylated exendin-4 (Ex4-C16), and (iii) dialysis with water, Pal-GC was self-assembled to form physically cross-linked hydrogels entrapped with Ex4-C16. The Pal-GC derivative was analyzed by using 1H NMR, and the surface morphology of Pal-GC hydrogels formed was examined by scanning electron microscopy. Also, the hypoglycemic effect induced by Pal-GC hydrogels containing Ex4-C16 (250 nmol/kg) was evaluated in non-fasted type 2 diabetic db/db mice and compared with GC hydrogels containing native Ex4 at the same dose. Results showed that palmityl group was successfully conjugated with the amines of glycol chitosan, and that Pal-GC efficiently generated the hydrogels formation. Moreover, Pal-GC hydrogels containing Ex4-C16 was found to greatly prolong the hypoglycemia duration (~ 4 days). This was due to the dual-functions of the palmityl groups present in both GC and exendin-4 such as hydrophobic attraction and plasma albumin-binding. We consider this new type of self-assembled GC hydrogels loaded with Ex4-C16 would be a promising long-acting sustained-release system with anti-diabetic property.