The ability of nanoparticles to manipulate the molecules and their structures has revolutionized the conventional drug delivery system. The chitosan nanoparticles, because of their biodegradability, biocompatibility, better stability, low toxicity, simple and mild preparation methods, offer a valuable tool to novel drug delivery systems in the present scenario. Besides ionotropic gelation method, other methods such as microemulsion method, emulsification solvent diffusion method, polyelectrolyte complex method, emulsification cross-linking method, complex coacervation method and solvent evaporation method are also in use. The chitosan nanoparticles have also been reported to have key applications in parentral drug delivery, per-oral administration of drugs, in nonviral gene delivery, in vaccine delivery, in ocular drug delivery, in electrodeposition, in brain targeting drug delivery, in stability improvement, in mucosal drug delivery in controlled drug delivery of drugs, in tissue engineering and in the effective delivery of insulin. The present review describes origin and properties of chitosan and its nanoparticles along with the different methods of its preparation and the various areas of novel drug delivery where it has got its application.