Background: A variety of hydrophobically modified polymers are now widely used in medicine, food products and the paint industry as thickeners.  Objective: We prepared a thermoresponsive hydrogel by utilizing the interaction of cyclodextrins (CDs) and a hydrophobically modified hydroxypropylmethyl cellulose (HM-HPMC). The potency of the thermoresponsive sol-gel transition system in ocular drug delivery and for a sustained release carrier of protein drugs was evaluated by in vitro and in vivo studies. Materials and Methods: HM-HPMC was dissolved in water and various amounts of α-, β- and γ-CD were added in the hydrogels. The thermoresponsive viscosity changes of HM-HPMC/CDs were evaluated by means of a rheometer. HM-HPMC/α-CD formulation containing 0.1 w/v % diclofenac sodium (DCFNa) were instilled onto the eyes of a rabbit and the drug concentrations in the aqueous humor and cornea were measured. In addition, human insulin was added to the HM-HPMC/CDs formulation, which was subcutaneously administered to rats. Results: The viscosity of HM-HPMC hydrogel markedly reduced when small amounts of α-CD were added. The HM-HPMC/α-CD showed reversible sol-gel transition in the physiological temperature range that was completely opposite to the temperature dependency shown by the original HM-HPMC. The thermoresponsive gelation was attributed to the temperature dependency of the interaction between CD and the hydrophobic moiety of HM-HPMC. The use of HM-HPMC/α-CD significantly improved the ocular absorption of DCFNa by virtue of the rapid formation of a gel on the ocular surface. The plasma glucose concentration was maintained at low levels when the insulin was administered subcutaneously in the form of the thermoresponsive hydrogel.  Conclusion: HM-HPMC/CDs was in a low viscous sol state at room temperature, which made administration easy, but it rapidly formed a viscous hydrogel in the physiological conditions, which will find numerous applications in the area of drug delivery.