The aim of the present investigation was to design a mucoadhesive liposomal system of Repaglinide for the treatment of type - 2 diabetes mellitus that is capable of delivering entrapped drug over an extended period of time. Mucoadhesive liposomal formulations were prepared by using different ratio of lecithin and cholesterol by thin film hydration technique followed by coating of liposomes by 0.1 % w/v and 0.3 % w/v of chitosan and were evaluated for entrapment efficiency, particle size, zeta potential, surface morphology and in-vitro drug release. Particle size and zeta potential of the F2 and C2F2 formulation was found to be 413.5 nm, 830.9 nm and -40.9 mV, -46.8 mV respectively. Coating of liposomes resulted increase in particle size and also increases the zeta potential.  Highest entrapment efficiency was observed in F1, CF1 and C2F2 90%, 95% and 94%. The percent drug release from F1-F3, CF1-CF3 and C2F1-C2F3 was observed as follows F1- 79.04%, F2- 76.77%, F3- 64.32%, CF1-66.65%, CF2- 62.12%, CF3- 56.54% and C2F1- 59.1%, C2F2-56.56%, C2F3- 53.45% which follows first order drug release and non-Fickian diffusion mechanism. And mucoadhesive strength from CF2- 60%, C2F2- 74%.