Chitosan is a natural, biologically safe polymer synthesized from chitin by deacetylation reaction. It is a tough, biodegradable, biocompatible, non-toxic linear polysaccharide suitable for various applications in pharmaceutical drug delivery technology. Chitosan has unique physicochemical and biological characteristics demanded for the development of safe and effective drug delivery systems.  One of the most properties of chitosan is for chelation. It can selectively bind to desired materials such as cholesterol, fats, metal ions, and protein and tumor cells. It also does not cause allergic reactions and rejection and is biodegradable in nature. It is metabolized into harmless products (amino sugars), which are completely absorbed by the human body. Chitosan being a good cationic polymer for membrane formation; have also been useful as artificial kidney membranes. Along with these properties it also possesses certain medicinal applications such as analgesic, hypocholesterolemic, hemostatic  antitumor, anti-oxidant spermicidal, CNS depressant, immunoadjuvant properties, antacid, antiulcer activities, wound and burn healing action and has been found to be suitable for immobilization of enzymes and living cells in ophthalmology Important applications of chitosan in the pharmaceutical industry are in the development of nasal, vaginal, ophthalmic, transdermal & topical, buccal, parenteral, colon-specific and in implantable drug delivery systems. This paper discusses the potential of chitosan in the development of drug delivery systems.