The encapsulation of inorganic nanoparticles by hydrogel shells offers a promising pathway toward the design of functional building blocks for manifold applications. Hydrogel shells can be grown in a broad range of thicknesses, from a few tens to several hundreds of nanometer, allowing for encapsulation of inorganic particles with different composition, size, and shape. This gives access to a diverse toolbox of colloidal building blocks, which combine properties of the individual components in a multifunctional fashion. Hydrogel shells provide the nano­particle cores with transparent, soft, and responsive coatings which improve the colloidal stability and allow interparticle distance control in colloidal assembly. The variation of the shell dimensions gives access to controlling the fill factor and ultimately distance-dependent effects such as plasmon resonance coupling. This article summarizes the latest efforts in the preparation of core-shell colloids with different inorganic cores and hydrogel shells of various morphologies as well as the assembly of these building blocks into functional superstructures. It is demonstrated how the level of complexity can be increased from 1D to 3D by chemical treatment of core-shell particles, i.e., core growth or core removal, and template-free as well as template-assisted assembly leading to isotropic and anisotropic arrangements of particles.