Carbon dots (CDs) have attracted significant research attention worldwide due to their unique properties and advantageous attributes, such as superior optical properties, biocompatibility, easy surface functionalization, and more. Moreover, biomass-derived CDs have attracted much attention because of their additional advantages related to more environmentally friendly and lower-cost synthesis. In this respect, chitosan has been recently explored for the preparation of CDs, which in comparison to other natural precursors exhibited additional advantages. Beyond the benefits related to the eco-friendly and abundant nature of chitosan, using it as a nanomaterial precursor offers additional benefits in terms of structure, morphology, and dopant elements. Furthermore, the high content of nitrogen in chitosan allows it to be used as a single carbon and nitrogen precursor for the preparation of N-doped CDs, significantly improving their fluorescent properties and, therefore, their performances. This review addresses the most recent advances in chitosan-based CDs with a special focus on synthesis methods, enhanced properties, and their applications in different fields, including biomedicine, the environment, and food packaging. Finally, this work also addresses the key challenges to be overcome to propose future perspectives and research to unlock their great potential for practical applications.