Chitosan is a biodegradable natural polymer with great potential for pharmaceutical applications due to its biocompatibility, high charge density, non-toxicity and mucoadhesion. It has been shown that it not only improves the dissolution of poorly soluble drugs but also exerts a significant effect on fat metabolism in the body. Gel formation can be obtained by interactions of chitosans with low molecular counterions such as polyphosphates, sulphates and crosslinking with glutaraldehyde. This gelling property of chitosan allows a wide range of applications such as coating of pharmaceuticals and food products, gel entrapment of biochemicals, plant embryo, whole cells, microorganism and algae. This review is an insight into the exploitation of the various properties of chitosan to microencapsulate drugs. Various techniques used for preparing chitosan microspheres and evaluation of these microspheres have also been reviewed. This review also includes the factors that affect the entrapment efficiency and release kinetics of drugs from chitosan microspheres.