The unique properties of chitosan make it a useful choice for various nanoparticulate drug delivery applications. Although chitosan is biocompatible and enables cellular uptake, its interactions at cellular and systemic levels need to be studied in more depth. This review focuses on the various physical and chemical properties of chitosan that affect its performance in biological systems. We aim to analyze recent research studying interactions of chitosan nanoparticles (NPs) upon their cellular uptake and their journey through the various compartments of the cell. The positive charge of chitosan enables it to efficiently attach to cells, increasing the probability of cellular uptake. Chitosan NPs are taken up by cells via different pathways and escape endosomal degradation due to the proton sponge effect. Furthermore, we have reviewed the interaction of chitosan NPs upon in vivo administration. Chitosan NPs are immediately surrounded by a serum protein corona in systemic circulation upon intravenous administration, and their biodistribution is mainly to the liver and spleen indicating RES uptake. However, the evasion of RES system as well as the targeting ability and bioavailability of chitosan NPs can be improved by utilizing specific routes of administration and covalent modifications of surface properties. Ongoing clinical trials of chitosan formulations for therapeutic applications are paving the way for the introduction of chitosan into the pharmaceutical market and for their toxicological evaluation. Chitosan provides specific biophysical properties for effective and tunable cellular uptake and systemic delivery for a wide range of applications.