Polycystic ovary syndrome (PCOS) is a prevalent endocrine disorder in women, often leading to infertility due to anovulation. Recent advances suggest that endometrial stem cells (EnSCs) hold considerable promise for tissue regeneration, which could be pivotal in treating PCOS. To enhance the survival and stabilization of EnSCs within the ovary, the EnSCs were encapsulated in an injectable alginate/gelatin hydrogel (SC–H), which has excellent biocompatibility to support the survival of EnSCs. Polycystic ovary syndrome was induced in female Wistar rats using intraperitoneal injection of letrozole over 21 days. Then the rats were treated with SC, SC-H and clomiphene citrate for one-month post-PCOS induction. The effects of these treatments were evaluated based on changes in body and ovarian weights, inflammatory markers, endocrine profiles, and ovarian histology. The Induction of PCOS led to a significant increase in body and ovarian cyst weight, elevated serum levels of testosterone, luteinizing hormone (LH), and anti-Müllerian hormone (AMH), alongside reduced follicle-stimulating hormone (FSH) and progesterone levels. Histologically, there was a decrease in granulosa cells, immature follicles, and corpus luteum numbers. Treatment with SC and SC-H significantly mitigated these alterations, indicating improved PCOS conditions. Our findings demonstrate that SC and SC-H treatments can effectively ameliorate the symptoms of letrozole-induced PCOS in rats, primarily through their anti-inflammatory effects. This study lays the groundwork for potential clinical applications of EnSCs encapsulated in alginate/gelatin hydrogel as a novel therapeutic strategy for PCOS, highlighting the importance of biomaterials in stem cell-based therapies.