In this article the competitive binding of citrate (2‐hydroxypropane‐1,2,3‐tricarboxylate), chitosan and α‐lipoic acid ((R)‐5‐(1,2‐dithiolan‐3‐yl) pentanoic acid, (LA) are tested on the surface of Gold Nanoparticle (AuNP). The chitosan matrix encapsulated gold nanoparticle resulted in colour reversibility in presence of α‐lipoic acid through partial ligand exchange mechanism. Different experimental analysis including TEM, EDX, spectrophotometry and FTIR were spectrometry performed to check the interaction mechanism and explain the colour reversibility. Binding and colour reversibility mechanism was also supported through the Density functional Theory calculations.