The present study dealt with emulsive fabrication of chitosan microcapsules encapsulating essential oils in the present of bio/surfactant. The size distribution, morphology and stability of microcapsules were examined by using advanced surface characterisation techniques. At cetyl trimethyl ammonium bromide (CTAB) concentration of 330 mg/L, the smallest average size of microcapsules was observed as12.8 μm; whereas with biosurfactant at 50 mg/L, the microcapsules of smallest average size of 7.5 μm were observed. The fabricated microcapsules were applied on a desized, bleached and mercerised cotton fabric by using pad-dry-cure method by using a modified dihydroxy ethylene urea as a cross-linking agent. The cross-linking was confirmed by using scanning electron microscopy and Fourier transform infrared spectroscopy techniques. The antibacterial activity of finished fabric was evaluated using the turbidity estimation method. The stiffness and wrinkle recovery properties of the treated fabric were also investigated by using the standard methods. In general, antibacterial activity of treated fabric increased with the increase in chitosan and essential oil concentrations, whereas stiffness increased with increase in concentration of chitosan but decreased with increase in essential oil concentration.