Aim and objective The study aimed to assess and evaluate the efficacy of glass ionomer modified with chitosan-reinforced gelatin microspheres on bone formation. Materials and methods  The study involved three groups: Group I comprised plain glass ionomer cement; Group II comprised glass ionomer cement/gelatin (70:30 wt%); in Group III, glass ionomer cement/gelatin/chitosan (70:30%) scaffold were made into discs; the gelatin microspheres were synthesized by oil emulsion method. The synthesized scaffold was subjected to the following in vitro testing, Instron Universal Testing Machine (UTM), U3000, (Instron Corporation, Norwood, Massachusetts, United States) to assess compressive strength, scanning electron microscope (SEM) examination, and biocompatibility testing using hemocompatibility assay. The material was then tested in vivo; male Wistar albino rats, a total of nine animals, were utilized for this purpose. Three animals were used in each group; a femoral defect model was the model of choice for the experiment and the animals were observed for a period of four weeks, following which the animals were sacrificed and sent for histopathological analysis. Results The compression testing was carried out using UTM; test group I was 33 MPa, test group II was 2.3 MPa, and test group III was 25.75 MPa. SEM (JSM-IT800 Schottky Field Emission NANO SEM (JEOL, Tokyo, Japan)) analysis was done to observe the porosity of the fabricated scaffold with the average measurement of 0.12 ± 0.2 μm in test group II and 0.29 ± 0.4 μm in test group III. Hemocompatibility reports noted 0.4-0.8% lysis for the synthesized scaffolds. Histopathology staining of the femur defects showed that group III favoured bone formation. One-way analysis of variance (ANOVA) and post hoc Bonferroni test was done on the data. The optical density values of the alizarin red stained slide showed statistical significance for group III. Conclusion In conclusion, the synthesized scaffolds are biocompatible, distribution of porosity and pore characteristics in the glass ionomer cement/gelatin/chitosan group is better than that of the glass ionomer cement/gelatin group. The glass ionomer cement/gelatin/chitosan group had better compressive strength and induced more bone formation compared to the other test group and the control. Thus, the novel glass ionomer modified with chitosan-reinforced gelatin microspheres has optimal properties to be used as a bone graft material.