Chitosan holds great promise for demanding applications such as functional packing and biomedical uses. There has been a notable increase in interest in combining chitosan or its derivatives with other polymers and nanofillers to achieve synergistic effects. Remarkable progress has been made through polymer molecular design and iterative nanotechnology in the development of chitosan-based nanocomposite materials tailored for high-performance applications. This review focuses on strategies to develop chitosan-based materials, highlighting the advantages and disadvantages of chitosan modification and critically evaluating various fabrication methods. Following a brief introduction to various nanofillers and their functionalization, this review discusses the functional properties (e.g., mechanical, thermal, water resistance, gas-barrier, stimulus-response, shape memory, biological, electrochemical, corrosion-protection, antifouling, and abruption/desorption) of various chitosan-based nanocomposite systems. It then highlights the emerging and potential applications of chitosan-based nanocomposites in various fields such as functional packaging, biomedicine, 3D bioprinting, sensing and wearable devices, environmental remediation, and chemical engineering. Moreover, we explore the factors that hinder the commercialization of chitosan-based nanocomposites. Our review not only surveys recent advancements in engineering sophisticated functional chitosan-based nanocomposite materials, customized for a diverse array of applications, but also offers insights into the future formulation of multifaceted chitosan-based nanocomposites, poised to tackle the distinct demands and hurdles encountered in burgeoning applications.