Bone defects requiring grafts to promote healing are frequently occurring and costly problems in health care. Chitosan, a biodegradable, naturally occurring polymer, has drawn considerable attention in recent years as scaffolding material in tissue engineering and regenerative medicine. Chitosan is especially attractive as a bone scaffold material because it supports the attachment and proliferation of osteoblast cells as well as formation of mineralized bone matrix. In this review, we discuss the fundamentals of bone tissue engineering and the unique properties of chitosan as a scaffolding material to treat bone defects for hard tissue regeneration. We present the common methods for fabrication and characterization of chitosan scaffolds, and discuss the influence of material preparation and addition of polymeric or ceramic components or biomolecules on chitosan scaffold properties such as mechanical strength, structural integrity, and functional bone regeneration. Finally, we highlight recent advances in development of chitosan-based scaffolds with enhanced bone regeneration capability.