A hybrid nanocomposite hydrogel (CMC–MWCNT) has been fabricated using carboxymethyl cellulose (CMC) and acid-functionalized multi-walled carbon nanotubes (MWCNTs) at room temperature for transdermal delivery of diclofenac sodium. With variation of MWCNT concentration, various grades of nanocomposites have been prepared and an optimized composite (CMC–MWCNT 3) has been considered with lower % swelling and higher gel strength. The synthesized nanocomposite has been characterized using FTIR spectroscopy, FESEM, TGA, AFM and TEM analyses. The gel strength of the nanocomposites has been measured by determining the rheological parameters. The biodegradability of the composite material has been confirmed using lysozyme hydrochloride. A biocompatibility study using primary rat fibroblasts (RFBs) confirmed the non-cytotoxic nature of the composite. The release profiles of diclofenac sodium indicate that the synthesized composite releases the drug in a sustained manner and would be a better alternative for transdermal devices.