Hydrogels are physically or chemically cross-linked polymers with the ability to absorb large amounts of water without dissolving. Elasticity, smartness, and high water sorption capacity make hydrogels extraordinary materials. Although synthetic hydrogels resemble biological tissue, they generally exhibit poor mechanical performance, which limits their use in stress-bearing applications. Hence, synthetic hydrogels that combine good mechanical properties with stimuli-responsiveness and self-healing ability are required for the development of several new technologies. To create such high-toughness hydrogels with self-healing abilities, hydrophobic modification of hydrophilic polymer chains has attracted great interest in recent years. Incorporation of a small amount of hydrophobic units with long alkyl side chains into hydrophilic polymers creates an energy dissipation mechanism. This mechanism appears as a result of the hydrophobic associations, i.e., reversible cross-links within the polymer network. Hydrogels formed via hydrophobic interactions in micellar solutions exhibit unique properties such as a high stretchability (up to 5,000 %), high mechanical strength (up to 1.7 MPa tensile stress), and complete autonomous self-healing ability. Mixed micelles acting as physical cross-links in these hydrogels are formed by dynamic hydrophobic association between the hydrophobic domains of the polymer chains and grown surfactant micelles. This chapter describes some conditions for formation of hydrophobic ally modified hydrogels with extraordinary mechanical properties and self-healing abilities. Special emphasis is placed on the role of surfactant micelles for the dynamic and mechanical properties of these hydrophobically modified hydrogels.