Chitosan, which is derived from chitin, is the only known natural alkaline cationic polymer. Chitosan is a biological material that can significantly improve the living standard of the country. It has excellent properties such as good biodegradability, biocompatibility, and cell affinity, and has excellent biological activities such as antibacterial, antioxidant, and hemostasis. In recent years, the demand has increased significantly in many fields and has huge application potential. Due to the poor water solubility of chitosan, its wide application is limited. However, chemical modification of the chitosan matrix structure can improve its solubility and biological activity, thereby expanding its application range. The review covers the period from 1996 to 2022 and was elaborated by searching Google Scholar, PubMed, Elsevier, ACS publications, MDPI, Web of Science, Springer, and other databases. The various chemical modification methods of chitosan and its main activities and application research progress were reviewed. In general, the modification of chitosan and the application of its derivatives have had great progress, such as various reactions, optimization of conditions, new synthetic routes, and synthesis of various novel multifunctional chitosan derivatives. The chemical properties of modified chitosan are usually better than those of unmodified chitosan, so chitosan derivatives have been widely used and have more promising prospects. This paper aims to explore the latest progress in chitosan chemical modification technologies and analyze the application of chitosan and its derivatives in various fields, including pharmaceuticals and textiles, thus providing a basis for further development and utilization of chitosan.