Thermoresponsive polymer segments have been reported to induce lateral microphase separations due to their switching transitions from a hydrophilic state to a hydrophobic one in hydrogels, which result in shrinkage and collapse of the polymer networks and significantly improved mechanical strength. However, the route from which the hydrophobic segments are assembled into micelles during microphase separations, and their thermoresponsive toughening mechanisms are not fully understood. In this study, a local conservation law of rubber elasticity is firstly formulated to describe the micellization and collapse of polymer networks in hydrogels, during which the thermoresponsive segments undergo a microphase separation. Flory-Huggins theory, interfacial free-energy equation and the extended Maxwell model are then employed to model the thermodynamics of micellization and microphase separations in the hydrogel, in which the polymer networks are composed of both hydrophilic and thermoresponsive segments. The toughening mechanism is further explored and discussed based on the proposed models. Finally, the proposed models have been verified using the experimental results reported in the literature. This study provides a new mechanism of local conservation law for rubber elasticity in hydrogels and also critical insights into the physical principles which govern the molecular self-assembly.