Chitosan is a biodegradable, biocompatible and extracellular matrix mimicking polymer. These tunable biological properties make chitosan highly useful in a wide range of applications like tissue-engineering, wound dressing material, controlled drug delivery system, biosensors and membrane separators, and as antibacterial coatings etc. Moreover, its similarity with glycosaminoglycans makes its suitable candidate for tissue-engineering. Electrospinning is a novel technique to manufacture nanofibers of chitosan and these nanofibers possess high porosity and surface area, making them excellent candidates for biomedical applications. However, lack of mechanical strength and water insolubility make it difficult to fabricate chitosan nanofibers scaffolds. This often requires blending with other polymers and use of harsh solvents. Also, the functionalization of chitosan with different chemical moieties provides a solution to these limitations. This article reviews the recent trends and sphere of application of chitosan nanofibers produced by electrospinning process. Further, we present the latest developments in the functionalization of this polymer to produce materials of biological and environmental importance.