The protein dynamical transition marks an increase in atomic mobility and the onset of anharmonic motions at a critical temperature, which is considered relevant for protein functionality. This phenomenon is ubiquitous, regardless of protein composition, structure and biological function and typically occurs at large protein content, to avoid water crystallization. Recently, a dynamical transition has also been reported in non-biological macromolecules, such as poly(N-isopropyl acrylamide) (PNIPAM) microgels, bearing many similarities to proteins. While the generality of this phenomenon is well-established, the role of water in the transition remains a subject of debate. In this study, we use atomistic molecular dynamics simulations and elastic incoherent neutron scattering (EINS) experiments with selective deuteration to investigate the microscopic origin of the dynamical transition and distinguish water and PNIPAM roles. While a standard analysis of EINS experiments would suggest that the dynamical transition occurs in PNIPAM and water at a similar temperature, simulations reveal a different perspective, also qualitatively supported by experiments. From room temperature down to about 180 K, PNIPAM exhibits only modest changes of dynamics, while water, being mainly hydration water under the probed extreme confinement, significantly slows down and undergoes a mode-coupling transition from diffusive to activated. Our findings therefore challenge the traditional view of the dynamical transition, demonstrating that it occurs in proximity of the water mode-coupling transition, shedding light on the intricate interplay between polymer and water dynamics.