You can seal drywall cracks from either the exterior or interior of the foundation. Both are equally effective if done correctly. If there is something in the way, such as a patio or deck, or if the basement is unfinished it is common to seal the cracks from inside. Drywall or paneling may force you to do it from the outside.
Interior Foundation Repair
It used to be the only way to seal a crack was to chipping out the area and patching it. This consisted of using a chipping hammer to chisel out the concrete in a ‘V’ shape. It needed to be a few inches deep then it was patched with hydraulic cement. It was not the best lasting solution because the crack was not filled all the way to the outside soil. Plus hydraulic cement is not an especially strong or long lasting product.
These days crack injection is the most utilized and preferred method of interior foundation crack repair. This consists of using an epoxy paste to seal the crack on the inside face, then injecting a resin that fills the entire crack to the soil. This is commonly referred to as Epoxy Injection or Urethane Injection. Urethanes are preferred because they stay flexible longer so are more effective for waterproofing.
Exterior Foundation Repair
To properly seal a crack from the exterior, you must remove the earth along the wall to expose the crack. It needs to be exposed from the footing all the way to the top of the wall. The hole is normally 8-12 inches, although a larger one may be necessary. When the crack is fully exposed from bottom to top, you need to fill the hole with granular clay. This will form an impenetrable water barrier to seal the crack.
Both options are completely viable and the choice is yours depending upon the circumstances of your repair.