Chitosan is a natural linear amino polysaccharide produced from the deacetylation of chitin obtained from crustaceans and insects. Chitosan structure consists of 2-acetamido-d-glucose and 2-amino-d-glucose units linked with glycosidic linkages. It is a versatile compound due to presence of reactive amino and hydroxyl groups making it easily available for chemical reactions. Various functional chitosan derivatives have been prepared using ionic interactions and other chemical modifications. Chitosan is known to exhibit excellent properties such as biodegradability, biocompatibility, non-toxicity and easy absorption which led to significant research towards industrial, pharmaceutical and biomedical applications. This review discusses the importance and characteristics of chitosan and its derivatives by describing various aspects including biological properties, chemical properties, techniques of preparation and its applications.