In the present work, a nanocomposite hydrogel wound dressing was prepared on the basis of poly(vinyl alcohol) using organically-modified montmorillonite as nanoclay by the freezing–thawing cyclic method. In vivo assays were performed to evaluate its performance as an applicable wound dressing on animals. It showed an improved healing process for wounds covered by the prepared nanocomposite hydrogel compared with control wounds covered by sterile gauze. Significant improvements, such as better creation of moist surfaces on the wound with less scar formation, shorter duration of healing operation and better closing of the wound edges with enhanced tensile properties of the healed wound, i.e., tensile strength and elongation-at-break, were observed using the prepared nanocomposite hydrogel in comparison to the sterile gauze. An in vitro cytotoxic assay was also utilized to determine the biocompatibility of the prepared nanocomposite hydrogel. It showed that the prepared nanocomposite hydrogel is non-toxic and can be used as a biocompatible wound dressing in practical wound management.