Corrosion resistance, biocompatibility, improved osteointegration, as well the prevention of inflammation and pain are the most desired characteristics of hip replacement implants. In this study we introduce a novel multi-layered coating on AISI 316LVM stainless steel that shows promise with regard to all mentioned characteristics. The coating is prepared from alternating layers of the biocompatible polysaccharide chitosan and the non-steroid anti-inflammatory drug (NSAID), diclofenac. Electrochemical methods were employed to characterize the corrosion behavior of coated and uncoated samples in physiological solution. It is shown that these coatings improve corrosion resistance. It was also found that these coatings release the incorporated drug in controlled, multi-mechanism manner. Adding additional layers on top of the as-prepared samples, has potential for further tailoring of the release profile and increasing the drug dose. Biocompatibility was proven on human-derived osteoblasts in several experiments. Only viable cells were found on the sample surface after incubation of the samples with the same cell line. This novel coating could prove important for prolongation of the application potential of steel-based hip replacements, which are these days often replaced by more expensive ceramic or other metal alloys.