Chitosan is a hydrolysis product from chitin, a naturally occurring polysaccharide derivative. Much attention has been given to the role of chitosan as a cholesterol and lipid binding agent. This characteristic fat binding property may partially be due to the gelation of chitosan which then encapsulates the cholesterol or other lipids.

The mechanism through which chitosan works may possibly depend upon the presence of an amino group in its structure. This makes chitosan similar to cholestyramine, a pharmaceutical well known for its cholesterol binding properties. Unlike cholestyramine (the chloride salt of a basic ion exchange resin which has several gastrointestinal related side effects), chitosan appears to be non-toxic. The passage of chitosan through the gastrointestinal tract is a simple one. In the acid conditions of the stomach, the chitosan structure is stable. Only at very high temperatures does chitosan break down in acidic conditions.

In the stomach the chitosan absorbs 200 to 400% of its weight in water, swelling to form a gel which then encapsulates lipids including cholesterol. Free amino groups in the structure of chitosan become positively charged and form bonds with functional groups, including -OH and -COOH, of dietary free fatty acids in the stomach. As the food moves into the duodenum it mixes with bile juices containing bile acids.

Bile acids are generally reabsorbed in the intestine, returned to the liver via the portal circulation; only very small amounts of bile acids make it into normal serum. However chitosan has the ability to bind with bile acids in the intestine, forming an insoluble complex which is carried through the large intestine intact, then excreted. The continuous, though partial, removal of bile acids from circulation by preventing their re-absorption, has been shown to lead to increased oxidation of cholesterol to bile acids. This has been shown using alternate substances which bind bile acids in a similar way to chitosan. This leads to a corresponding decrease of beta-lipoprotein or low-density lipoprotein in plasma and a resulting decrease in serum cholesterol levels.