In recent years, the textile industry has been moving to novel concepts of products, which could deliver to the user, improved performances. Such smart textiles have been proven to have the potential to integrate within a commodity garment advanced feature and functional properties of different kinds. Among those functionalities, considerable interest has been played in functionalizing commodity garments in order to make them positively interact with the human body and therefore being beneficial to the user health. This kind of functionalization generally exploits biopolymers, a class of materials that possess peculiar properties such as biocompatibility and biodegradability that make them suitable for bio-functional textile production. In the context of biopolymer chitosan has been proved to be an excellent potential candidate for this kind of application given its abundant availability and its chemical properties that it positively interacts with biological tissue. Notwithstanding the high potential of chitosan-based technologies in the textile sectors, several issues limit the large-scale production of such innovative garments. In facts the morphologies of chitosan structures should be optimized in order to make them better exploit the biological activity; moreover a suitable process for the application of chitosan structures to the textile must be designed. The application process should indeed not only allow an effective and durable fixation of chitosan to textile but also comply with environmental rules concerning pollution emission and utilization of harmful substances. This chapter reviews the use of microencapsulation technique as an approach to effectively apply chitosan to the textile material while overcoming the significant limitations of finishing processes. The assembly of chitosan macromolecules into microcapsules was proved to boost the biological properties of the polymer thanks to a considerable increase in the surface area available for interactions with the living tissues. Moreover, the incorporation of different active substances into chitosan shells allows the design of multifunctional materials that effectively combine core and shell properties. Based on the kind of substances to be incorporated, several encapsulation processes have been developed. The literature evidences how the proper choices concerning encapsulation technology, chemical formulations, and process parameter allow tuning the properties and the performances of the obtained microcapsules. Furthermore, the microcapsules based finishing process have been reviewed evidencing how the microcapsules morphology can positively interact with textile substrate allowing an improvement in the durability of the treatment. The application of the chitosan shelled microcapsules was proved to be capable of imparting different functionalities to textile substrates opening possibilities for a new generation of garments with improved performances and with the potential of protecting the user from multiple harms. Lastly, a continuous interest was observed in improving the process and formulation design in order to avoid the usage of toxic substances, therefore, complying with an environmentally friendly approach.