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Hydrophobically modified polymeric matrices for drug delivery were developed by N-acylation of chitosan with long(C 18 ) and medium chain(C 8 ) fatty acid chlorides like octanoyl and oleoyl chloride. Chemical modifications of chitosan were confirmed by IR spectra and trinitrobenzenesulphonic acid assay. Modified chitosan particles were prepared by ionotropic gelation with sodium tripolyphosphate. Hydrophobic modification was confirmed by contact angle measurements. Scanning electron micrographs showed the presence of compact microparticles. Swelling studies showed that oleoyl chitosan exhibited low swelling profile than octanoyl chitosan at acidic pH. In vitro release profile at pH 7.4 showed that about 90% of insulin was released by 5th hour. ELISA studies proved that the microparticles were capable of maintaining biological activity of insulin. Mucoadhesion studies proved that oleoyl derivative was more mucoadhesive than octanoyl derivative. In vivo uptake studies of fluorescent-labeled microparticles on rat intestinal sections showed that oleoyl chitosan microparticles exhibited significant uptake than octanoyl chitosan. These results suggests that oleoyl moiety would resist degradation by the gastric enzymes and will enhance mucoadhesivity through hydrophobic interactions and also the permeability by loosening the tight junctions, thus making it a useful carrier for oral peptide delivery applications.