Recently, transmucosal drug delivery systems (TDDSs) have been extensively studied because they protect therapeutic agents from degradation; improve drug residence time at the mucosal membranes; and facilitate sustained drug release for a prolonged period. Chitosan is a well-researched polymeric excipient due to its biocompatibility, non-toxicity, biodegradability, mucoadhesive, antimicrobial, and low immunogenicity. Its limited mucoadhesiveness in the physiological environment necessitated its chemical modification. This review highlights the recent advances in the chemical modification of chitosan with various chemical groups to generate various functionalized chitosan derivatives, such as thiolated, acrylated, methacrylated, boronated, catechol, and maleimide-functionalized chitosans with superior mucoadhesive capabilities compared to the parent chitosan. Moreover, it presents the different prepared dosage forms, such as tablets, hydrogels, films, micro/nanoparticles, and liposomes/niosomes for drug administration within various mucosal routes including oral, buccal, nasal, ocular, colonic, intravesical, and vaginal routes. The reported data from preclinical studies of these pharmaceutical formulations have revealed the controlled and target-specific delivery of therapeutics because of their formation of covalent bonds with thiol groups on the mucosal surface. All functionalized chitosan derivatives exhibited long drug residence time on mucosal surfaces and sustainable drug release with excellent cellular permeability, drug efficacy, and biocompatibility. These promising data could be translated from the research laboratories to the clinics with consistent and intensive research effort.