Nanoparticle-based therapies are found to be effective due to the unique mechanisms-of-action to engineered nanoparticles. These nanoparticles are programmed to be target specific and they can hold drugs along with imaging agents for simultaneous diagnostic and therapeutic purposes. They are making their way into the clinical realm. In this work we propose to develop Cadmium sulphide (CdS) nanoparticles with reduced toxicity that could function as a theranostic nanoparticle for bio- imaging applications. The work focuses on the toxicological investigation of surface modified cadmium sulphide nanoparticles. Uncoated and Chitosan coated CdS nanoparticles were synthesized by wet chemical method. The physico-chemical properties of the nanoparticles were characterized by X-ray diffraction, UV–Vis absorption, Fourier transform infrared, photoluminescence, X-ray photoelectron spectroscopy, dynamic light scattering, zeta potential and transmission electron microscopy. MTT assay was performed for toxicity profiling of the synthesized CdS nanoparticles in Human Jurkat cell and erythrocytes cell lines. The results showed a significant reduction in toxicity when the CdS nanoparticles surface was modified with Chitosan. Flow cytometer studies were performed to assess the incorporation of the synthesized nanoparticles into the cells. Photoluminescence studies showed that the surface modified CdS nanoparticles retained their fluorescence intensity regardless of their surface modification with Chitosan. Chitosan modified surface of the nanoparticles served as an effective barricade against the degradation of cadmium core. Surface modification with Chitosan, reduced the toxicity of cadmium sulphide nanoparticles retaining their fluorescent property in the cells. Thus by intentionally attaching bio-conjugates can be efficiently used for drug delivery to target specific cells as well as enable the imaging for cells. •Chitosan coating preserves the integrity and stability of the CdS NPs.•Surface modification with chitosan showed a significant reduction in the toxicity of CdS NPs.•Chitosan modified surface served as an effective safeguard against the degradation of cadmium ions.•Chitosan coated CdS NPs can serve as an effective theranostics probe for bio-imaging.