In this study, a science based approach is taken to monitor the variation of the properties, bioactivity and hydrogel formation behavior of gelatin upon functionalization with Ureido Pyrimidinone hexyl isocyanate (UPy synthon), which results in reversible physical network formation. UPy functionalization was carried out at 50 °C in DMSO. The reaction completion was confirmed using FTIR and ¹H-NMR spectroscopy. The degree of gelatin functionalization was found to be about 22% of the active sites according to UV-visible measurements. Hydrophilicity and swelling of gelatin were affected consequently. DSC analysis showed a significant decrease in the glass transition temperature of gelatin following UPy functionalization. Based on AFM observations, a clear micro-phase separation was induced in gelatin upon treatment. WAXS investigation showed a significant decrease in gelatin triple and single helices upon functionalization. According to rheological measurements GelUPy forms a physical network of higher stability than gelatin and a remarkable increase in elastic to viscous transition temperature from 41 °C to 83 °C was observed. GelUPy showed a clear temperature/water triggered shape memory behavior while retaining the temporary shape in the absence of these stimuli. GelUPy possesses better mechanical properties than gelatin in a wet state. Biocompatibility evaluation revealed that the viability of L929 fibroblasts remained intact on GelUPy. GelUPy, a biodegradable shape memory hydrogel, was successfully used as a controlled drug delivery matrix. Our results propose that GelUPy is a promising material in biomedical applications as a drug carrier and tissue engineering scaffold, while crosslinking with suspected toxic reagents such as glutaraldehyde is avoided.