Supramolecular assembly of short peptides is a crucial process and has shown numerous potential applications as biomaterials. In the present work, the hydrogelation process of short peptides containing C-terminal "Lys-Cys" (KC) residues have been studied in detail. The N-terminal capping is found to be essential for effective gelation. Out of 12 peptides we studied, two of them could form hydrogels efficiently: Ac-VVKC-NH2 and Ac-FFKC-NH2. In both cases, the monomer-to-dimer formation through disulfide linkages by Cys residues controls the aggregation process. Interestingly, the presence of H2O2 facilitated the dimerization and thereby reduced the gelation time but could not impart much effect on the mechanical properties of the gels. Detailed rheological study revealed that both hydrogels are thixotropic in nature. Moreover, they are responsive to glutathione (GSH) due to the presence of disulfide linkages. However, the hydrogel of Ac-FFKC-NH2 is found to be stronger and more effective for biological applications. The thixotropic nature as well as a model drug release study in response to varying GSH concentration indicates the possible use of the hydrogel as an injectable local drug delivery vehicle. The hydrogel of Ac-FFKC-NH2 is noncytotoxic in nature. Three-dimensional cell proliferation has been found to be more effective than 2D, as it mimics the in vivo situation more closely if not exactly. In the present study, we have shown that both differentiated RAW macrophages and undifferentiated THP-1 monocytes could proliferate significantly within the 3D matrix of the hydrogel, without depicting any apparent cytotoxicity. Thus, the hydrogel of Ac-FFKC-NH2 has potential for application in localized drug administration and as a supporting biomaterial to study basic phenomena involving cell behavior.