With the industrial developments in recent times, the textile industry also needs sustainable and environmental-friendly resources. Today’s world has been overburdened with the use of synthetic or hazardous materials in day-to-day life. Chitosan polymer obtained from chitin deacetylation, having a lot of properties beneficial to mankind without being hazardous to environment and humans is currently gaining popularity for research and development all over the globe. Antimicrobial and antiviral textile finishing with the help of chitosan is a new trend in the textile field. Also, chitosan having good adsorption properties finds its application in textile effluent treatments. This review reports and discusses multifunctional finishing and dyeing of textiles with chitosan and highlights its application for textile wastewater treatment.