Chitosan, a biopolymer derived from chitin—the second most abundant natural polysaccharide found in crustaceans such as crabs, lobsters, and shrimp—has become a cornerstone in biomedical innovation. Its unique properties, including hydrophilicity, biocompatibility, biodegradability, low toxicity, and intrinsic cationic nature, make it an ideal candidate for the development of sustainable and multifunctional nanomaterials. Chitosan nanoparticles (CNPs), distinguished by their nanoscale size and enhanced physicochemical characteristics, offer significant advantages in biomedicine, particularly in diagnostic imaging as targeted delivery systems for drugs, genes, and biomolecules in cancer therapy. The green synthesis of CNPs through methods such as microemulsion, polyelectrolyte complexation, ionic gelation, emulsification-solvent diffusion, and reverse micellization further emphasizes their eco-friendly and sustainable production. Recognized as a Generally Recognized as Safe (GRAS) material by the USA Food and Drug Administration, chitosan is widely accepted for use in biomedical applications. This review comprehensively explores the structural features, environmentally friendly synthesis strategies, and advanced characterization techniques of CNPs. Moreover, it highlights their interdisciplinary biomedical applications, including drug delivery via ocular, oral, pulmonary, vaginal, and nasal routes, as well as their promising role in tissue engineering and cancer therapy. By integrating green chemistry principles with advanced biomedical design, CNPs are reshaping the future of nanomedicine, offering sustainable and targeted therapeutic solutions.