As a sustained-release drug depot for localized cancer treatment, in situ thermo-sensitive hydrogel has attracted increasing interests. However, it is currently a big challenge to achieve high drug-loading, sustained and stable drug release, as well as long-term local drug retention simultaneously. We hypothesized that this goal could be accomplished by incorporating the nanocrystals (NCs) of a hydrophobic drug, such as paclitaxel (PTX) into the thermo-sensitive hydrogel (Gel). Hence, a PTX-NCs-Gel system has been constructed with thermo-sensitive Pluronic F127, using PTX-NCs and Taxol® as the controls. Besides, near infra-red agent DiR was used to prepare PTX/DiR hybrid NCs and PTX/DiR hybrid NCs-Gel as well. As a result, this hydrogel system could achieve a high drug loading of PTX up to 3 mg/ml while stabilize the particle size of PTX-NCs significantly compared with PTX-NCs alone. There was no obvious interaction between PTX-NCs and F127. Obviously, PTX/DiR hybrid NCs-Gel presented better localized retention capacity and a much longer retention time in murine 4T1 tumor than PTX/DiR hybrid NCs and Cremophor/ethanol solubilized DiR in vivo. With a linear elimination, over 10% of PTX still remained inside of mouse 4T1 tumor 20 days after intratumoral dosing of PTX-NCs-Gel. Importantly, PTX-NCs exhibited comparable cytotoxity against 4T1 and MCF-7 cells in vitro compared with Taxol®, which could ensure the efficacy of PTX-NCs-Gel. After intratumoral injection, PTX-NCs-Gel was found to be the most effective among all PTX formulations in the 4T1 and MCF-7 tumor-bearing mice models, with much lower system toxicity than Taxol®. In general, it is believed that the novel thermo-sensitive hydrogel system prepared in this study with PTX-NCs affords high drug-loading, sustained and stable drug release, as well as extended drug retention inside of tumor, which results in better therapy and lower toxicity.