Chitosan oligosaccharide (COS) is an oligomer of β-(1➔4)-linked d-glucosamine. COS can be prepared from the deacetylation and hydrolysis of chitin, which is commonly found in the exoskeletons of arthropods and insects and the cell walls of fungi. COS is water soluble, non-cytotoxic, readily absorbed through the intestine and mainly excreted in the urine. Of particular importance, COS and its derivatives have been demonstrated to possess several biological activities including anti-inflammation, immunostimulation, anti-tumor, anti-obesity, anti-hypertension, anti-Alzheimer's disease, tissue regeneration promotion, drug and DNA delivery enhancement, anti-microbial, anti-oxidation and calcium-absorption enhancement. The mechanisms of actions of COS have been found to involve the modulation of several important pathways including the suppression of nuclear factor kappa B (NF-κB) and mitogen-activated protein kinases (MAPK) and the activation of AMP-activated protein kinase (AMPK). This review summarizes the current knowledge of the preparation methods, pharmacokinetic profiles, biological activities, potential therapeutic applications and safety profiles of COS and its derivatives. In addition, future research directions are discussed.