Chitosan (CTS), a natural biopolymer derived from chitin, has garnered significant attention owing to its potential chemical, biological, and physical properties, such as biocompatibility, bioactivity, and biosafety. This comprehensive review traces the historical development of CTS-based materials and delves into their specific applications across various fields. The study highlights the evolution of CTS from its initial discovery to its current state, emphasizing key milestones and technological advancements that have expanded its utility. Despite the extensive research, the synthesis and functionalization of CTS to achieve desired properties for targeted applications remain a challenge. This review addresses current problems such as the scalability of production, consistency in quality, and the environmental impact of extraction and modification processes. Additionally, it explores the novel applications of CTS-based materials in biomedicine, agriculture, environmental protection, and food industry, showcasing innovative solutions and future potentials. By providing a detailed analysis of the current state of CTS research and identifying gaps in knowledge, this review offers a valuable resource for researchers and industry professionals. The novelty of this work lies in its holistic approach, combining historical context with a forward-looking perspective on emerging trends and potential breakthroughs in the field of CTS-based functional materials. Therefore, this review will be helpful for readers by summarizing recent advances and discussing prospects in CTS-based functional materials.