Self-assembling peptide based hydrogels have a wide range of applications in the field of tissue repair and tissue regeneration. Because of its physicochemical properties, (RADA)₄ has been studied as a potential platform for 3D cell culture, drug delivery, and tissue engineering. Despite some small molecule and protein release studies with this system, there is a lack of work investigating the controlled release of hydrophobic compounds (i.e., anti-inflammatory, anticancer, antibacterial drugs, etc.) that are important for many clinical therapies. Attempts to incorporate hydrophobic compounds into self-assembling matrices usually inhibited nanofiber formation, rather resulting in a peptide–drug complex or microcrystal formation. Herein, a self-assembling chitosan/carboxymethyl-β-cyclodextrin nanoparticle system was used to load dexamethasone, which formed within a self-assembling (RADA)₄ nanoscaffold matrix. Nanoparticles dispersed within the matrix were stabilized by the nanofibers within. The in vitro release of dexamethasone from the hybrid system was observed to be pH sensitive. At pH 7, release was observed for more than 8 days, with three distinct kinetic domains in the first 6 days. Data suggest that the deprotonation of chitosan at a solution pH > 6.8 leads to nanoparticle dissociation and ultimately the release of dexamethasone from the hybrid system. This system has the potential to form a multifunctional scaffold that can self-assemble with the ability to control the release of hydrophobic drugs for a wide variety of applications.