Chitosan, a biocompatible and biodegradable polymer, has attracted significant interest in the development of nanoformulations for targeted drug delivery and therapeutic applications. The versatility of chitosan lies in its modifiable functional groups, which can be tailored to diverse applications. Nanoparticles derived from chitosan and its derivatives typically exhibit a positive surface charge and mucoadhesive properties, enabling them to adhere to negatively charged biological membranes and gradually release therapeutic agents. This comprehensive review investigates the manifold roles of chitosan-based nanocarriers, ranging from preclinical research to theranostic applications and clinical trials, across a spectrum of diseases, including neurological disorders, cardiovascular diseases, cancer, wound healing, gastrointestinal disorders, and pulmonary diseases. The exploration starts with an overview of preclinical studies, emphasizing the potential of chitosan-based nanoformulations in optimizing drug delivery, improving therapeutic outcomes, and mitigating adverse effects in various disease categories. Advancements in theranostic applications of chitosan-based nanoformulations highlight their adaptability to diverse diseases. As these nanoformulations progress toward clinical translation, this review also addresses the regulatory challenges associated with their development and proposes potential solutions.