The textile industry has recently been developing innovative products that integrate functional properties within commodity textiles. In particular, research has focussed on the concept of biofunctional textiles, i.e., textile materials possessing beneficial properties for human health. Biofunctional textiles are synthesised by functionalization of fabric surfaces with biopolymers. As an example, the chitosan biopolymer is promising for textile functionalization due to chitosan availability, low cost, safety and unique properties. Yet several challenges have to be overcome. Firstly, the morphology of chitosan must be optimized prior chitosan application to the textile surface. Secondly, the last treatment must be carefully designed in order to achieve an effective and durable functionalization. Lastly, the overall production process must comply with environmental rules concerning pollution emission and utilization of harmful substances. This review describes microencapsulation as a strategy to overcome limitations and to confer better properties to the textile material. The properties of chitosan and the concept of microencapsulation are presented. Then we present the main techniques of chitosan encapsulation. Furthermore, we detail the textile finishing processes and the textile products. Last, the perspectives are discussed in the context of green chemistry and compliance with an environmentally friendly approach.