Nanodrug delivery systems have been widely reviewed for their use in several drug formulations to improve bioavailability, sustain effect, and decrease side effects of many candidate drugs. The objective of this study was to evaluate the potential of chitosan (CS)-coated nanosuspensions to enhance bioavailability and reduce the diarrheal side effect of diacerein (DCN) after oral administration. DCN nanosuspensions (DNS) were prepared by sonoprecipitation technique using different stabilizers at three different concentrations. The selected DNS with optimum particle size (PS), polydispersity index (PDI), and Zeta potential (ZP) was coated with three different concentrations of CS-coated DNS (CS-DNS) and screened. In vitro dissolution was performed for the selected lyophilized formulae and compared with DCN powder in addition to the assessment of drug crystallinity via scanning electron microscopy, X-ray powder diffraction, and differential scanning calorimetry. Ex vivo drug permeability using noneverted rat intestine, intraluminal content, and mucoadhesion evaluation was studied for nominated formulae in comparison to DCN suspension. Moreover, in vivo study, pharmacokinetic parameters, and evaluation of diarrheal potential were conducted after oral administration of selected formulae. Polyvinyl pyrrolidone (PVP)-stabilized DNS showed a significant increase (
P
≤0.05) in PS and PDI as the stabilizer concentration increased. PVP-stabilized DNS with the lowest CS concentration was protected from aggregation by lyophilization with mannitol. A remarked enhancement in dissolution parameters was observed in the nanocrystals’ formulae. Morphological examination and X-ray diffraction confirmed drug crystallinity. The intermediate permeation parameters of CS-DNS-F10, lowest rhein-to-DCN ratio in intraluminal content along with the highest percentage of mucoadhesive, could serve as a sustaining profile of coated formula. CS-DNS-F10 showed a significantly higher
C
max
of 0.74±0.15 µg/mL at a delayed
T
max
of 3.60±0.55 hours with a relative bioavailability of 172.1% compared to DCN suspension. CS-coated nanosuspensions could serve as promising revenue to enhance bioavailability and reduce the diarrheal side effect of DCN after oral administration.