Widely used plastic products are usually buried or directly discharged into the natural environment after use due to their difficulty in degradation, which will bring lasting harm to the fragile ecological environment. To solve the energy shortage and plastic pollution, wood plastic composite (WPC) has a great development prospect in contemporary society. However, the problem of interfacial compatibility between wood fibre and plastic leads to defects in WPC performance. This paper aims to use chitosan as an interfacial compatibiliser to modify traditional WPC, thereby greatly improving its mechanical strength, endowing it with new functions of thermal conductivity and antibacterial properties, and exploring the optimal ratio of chitosan. The prepared WPC with chitosan (CS) content of 10% (WPC-10%CS) has the best performance, including good tensile strength (99.4 MPa) and flexural strength (79.6 MPa), high water resistance (water absorption only 1.86%) and corrosion resistance, excellent UV resistance and thermal stability. WPC-10%CS also shows high thermal conductivity (up to 1.21 W/mK) and antibacterial properties. In view of all these excellent properties, WPC-10%CS has the potential to become a viable candidate material on the path to sustainable development and can be widely used as a functional material in indoor and outdoor applications.