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Many by-products that are harmful to the environment and human health are generated during food processing. However, these wastes are often potential resources with high-added value. For example, crustacean waste contains large amounts of chitin. Chitin is one of the most abundant polysaccharides in natural macromolecules, and is a typical component of crustaceans, mollusks, insect exoskeleton and fungal cell walls. Chitosan is prepared by deacetylation of chitin and a copolymer of D-glucosamine and N -acetyl-D-glucosamine through β-(1 → 4)-glycosidic bonds. Chitosan has better solubility, biocompatibility and degradability compared with chitin. This review introduces the preparation, physicochemical properties, chemical and physical modification methods of chitosan, which could help us understand its biological activities and applications. According to the latest reports, the antibacterial activity, antioxidant, immune and antitumor activities of chitosan and its derivatives are summarized. Simultaneously, the various applications of chitosan and its derivatives are reviewed, including food, chemical, textile, medical and health, and functional materials. Finally, some insights into its future potential are provided, including novel modification methods, directional modification according to structure-activity relationship, activity and application development direction, etc. • The utilization of chitosan is effective solution to improve the value of waste. • The physicochemical properties and modification of chitosan were reviewed. • Chitosan and its derivatives have many biological activities. • Chitosan and its derivatives can be used in various industrial fields. [ABSTRACT FROM AUTHOR]