Peptide-based low molecular weight supramolecular hydrogels hold promising aspects in various fields of application especially in biomaterial and biomedical sciences such as drug delivery, wound healing, tissue engineering, cell proliferation, and so on due to their extreme biocompatibility. Unlike linear peptides, cyclic peptides have more structural rigidity and tolerance to enzymatic degradation and high environmental stability which make them even better candidates for the above-said applications. Herein, a new small cyclic dipeptide (CDP) cyclo-(Leu-S-Bzl-Cys) (P1) consisting of L-leucine and S-benzyl protected L-cysteine was reported which formed a hydrogel at physiological conditions (at 37°C and pH = 7.46). The hydrogel formed from the cyclic dipeptide P1 showed very good tolerance towards environmental parameters such as pH and temperature and was seen to be stable for more than a year without any deformation. The hydrogel was thermoreversible and stable in the pH range 6-12. Mechanical strength of P1 hydrogel was measured by rheology experiments. Atomic force microscopy (AFM) and field emission scanning electron microscopy (FE-SEM) images revealed that, in aqueous solvents, P1 self-assembled into a highly cross-linked nanofibrillar network which immobilized water molecules inside the cages and formed the hydrogel. The self-assembled cyclic dipeptide acquired the antiparallel ß-sheet secondary structure, which was evident from CD and Fourier transform infrared (FT-IR) studies. The ß-sheet arrangement and formation of amyloid fibrils were further established by ThT binding assay. Furthermore, P1 was able to form a hydrogel in the presence of the anticancer drug 5-fluorouracil (5FU), and sustainable release of the drug from the hydrogel was measured in vitro. The hydrogelator P1 showed almost no cytotoxicity towards the human colorectal cancer cell line HCT116 up to a considerably high concentration and showed potential application in sustainable drug delivery. The co-assembly of 5FU and P1 hydrogel exhibited much better anticancer activity towards the HCT116 cancer cell line than 5FU alone and decreased the IC50 dose of 5FU to a much lower value.