Azelaic acid (AzA) is a USFDA bioactive prescribed against acne vulgaris. It possesses delivery challenges like poor aqueous solubility, low skin-penetrability, and dose-dependent side effects, which could be overcome by its synergistic combination with tea tree oil (TTO) as a microemulsion (ME)-based hydrogel composite. AzA-TTO ME was prepared to employ pseudo-ternary phase diagram construction. The best AzA-TTO ME was of uniform size (polydispersity index 90%), and negative zeta potential (-1.42 ± 0.25% mV) values. ME hydrogel composite with optimum rheological and textural attributes showed better permeation, retention, and skin-compliant characteristics, vis-a-vis marketed formulation (Aziderm™) when evaluated in Wistar rat skin. In vitro antibacterial efficacy in bacterial strains, i.e., Staphylococcus aureus, Propionibacterium acne, and Staphylococcus epidermidis, was evaluated employing agar well plate diffusion and broth dilution assay. ME hydrogel has shown an increase in zone of inhibition by two folds and a decrease in minimum inhibitory concentration (MIC) by eightfold against P. acnes vis-a-vis AzA. Finally, ME hydrogel composite exhibited a better reduction in the papule density (93.75 ± 1.64%) in comparison to Aziderm™ 72.69 ± 4.67%) on acne as developed in rats by inducing testosterone. Thus, the developed AzA-TTO ME hydrogel composite promises an efficacious and comparatively safer drug delivery system for the topical therapy of acne vulgaris.