Lignin is a low-cost, natural polymer with abundant polar sites on its backbone that can be utilized for physical cross-linking of polymers. Here, we use lignin for additional cross-linking of hydrophilic polyether-based polyurethane (HPU) hydrogels, aiming to improve their mechanical properties and processability. Without reducing the swelling, simple addition of 2.5 wt % lignin increases the fracture energy and Young’s modulus of HPU hydrogels from, respectively, 1540 ± 40 to 2050 ± 50 J m–2 and 1.29 ± 0.06 to 2.62 ± 0.84 MPa. Lignin also increases the lap shear adhesiveness of hydrogels and induces an immediate load recovery of 95%. We further confirm that hydrogen bonding is the dominant toughening mechanism and elucidate the toughening mechanism by applying the Lake-Thomas and a recently developed sequential debonding theory. We show that unlike the Lake–Thomas theory, the latter model is able to capture the impact of lignin on toughening of hydrogels. Moreover, the lignin-loaded HPU hydrogels are easily processable by various techniques, such as fiber spinning, casting, and 3D printing and are biocompatible with primary human dermal fibroblasts.