Adsorption is the most widely used technique for advanced wastewater treatment. The preparation and application of natural renewable and environmentally friendly materials makes this process easier and more profitable. Chitosan is often used as an effective biomaterial in the adsorption world because of its numerous functional applications. Chitosan is one of the most suitable and functionally flexible adsorbents because it contains hydroxyl (-OH) and amine (-NH2) groups. The adsorption capacity and selectivity of chitosan can be further improved by introducing additional functions into its basic structure. Owing to its unique surface properties and adsorption ability of chitosan, the development and application of chitosan nanomaterials has gained significant attention. Here, recent research on chitosan nanoparticles is critically reviewed by comparing various methods for their synthesis with particular emphasis on the role of experimental conditions, limitations, and applications in water and wastewater treatment. The recovery of pollutants using magnetic nanoparticles is an important treatment process that has contributed to additional development and sustainable growth. The application of such nanoparticles in the recovery metals, which demonstrates a “close loop technology” in the current scenarios, is also presented in this review.