With increasing energy demand, it has become pertinent to develop high-performing drilling fluids and additives with environmental compatibility for troublesome shale gas formations. In this research work, carboxymethyl chitosan (CM-CS) was synthesized using carboxymethylation reactions and characterized using advanced analytical techniques. The synthesized CM-CS was used as an additive in a water-based drilling fluid system comprising clay, carboxymethyl cellulose, polyanionic cellulose, and xanthan gum. The experimental investigation results of the drilling fluid properties, including the filtration and rheological tests, showed improvement compared with poly-(ethylene glycol) (PEG), a conventional shale inhibitor. At 0.3, 0.6, and 0.9 (w/v%) CM-CS, the filtrate loss was reduced by 38.75, 50, and 53.12% in comparison to the base fluid. Other tests included ζ-potential and shale recovery tests. The ζ-potential was used to determine the suspension stability of the drilling fluid. Shale recovery tests were conducted to assess the effectiveness of the fluid to address the wellbore instability issues for the chosen shale samples. The primary shale recovery percentages of CM-CS and PEG in drilling fluids were compared. Results show that the primary recovery factors increased by 32.42, 33.81, and 34.12 (wt%) when 0.3, 0.6, and 0.9 (w/v%) CM-CS was used as an additive. CM-CS shows minimum interaction of the fluid with the Indian shale samples based on shale recovery tests and filtration studies, which suggests that it can be better suited for the drilling fluid application in troublesome shale gas formation.