The bone tissue engineering approach for treating large bone defects becomes necessary when the tissue damage surpasses the threshold of the inherent regenerative ability of the human body. A myriad of natural biodegradable polymers and scaffold fabrication techniques have emerged in the last decade. Chitosan (CS) is especially attractive as a bone scaffold material to support cell attachment and proliferation and mineralization of the bone matrix. The primary amino groups in CS are responsible for properties such as controlled drug release, mucoadhesion, in situ gelation, and transfection. CS-based smart drug delivery scaffolds that respond to environmental stimuli have been reported to have a localized sustained delivery of drugs in the large bone defect area. This review outlines the recent advances in the fabrication of CS-based scaffolds as a pharmaceutical carrier to deliver drugs such as antibiotics, growth factors, nucleic acids, and phenolic compounds for bone tissue regeneration.