An enzymatic method for functionalization of chitosan (CTS) with a hydrophobic monophenol compound (4-hexyloxyphenol, HP) using laccase was presented, yielding a chitosan derivative (Lac/HP-CTS) as a coating on the Kraft paper sheet. The dissolve oxygen, UV/vis, FT-IR and 1H NMR spectra were used to characterize the chemical structure of the resulting copolymer. The results showed that HP was oxidized into the semi-quinone structure, and then was bonded onto the chitosan via Schiff-base reaction and electrostatic interaction. The hydrophobicity and strength of paper were evaluated after coated by the pure chitosan or chitosan derivative. Compared with paper coated by pure chitosan, the hydrophobicity and wet strength of the coated paper via the chitosan derivative were improved significantly at the coating concentration of 0.6 g/100 mL with the coat weight of 1.53 g/m2. Meanwhile, the different enhancement behaviors in the strength (dry or wet) performance were observed, due to the greatly influenced interaction of the hydrogen bonding between the copolymer coating and the cellulose fibers by the grafted HP. Further, the hydrophobicity and strength were observed to be enhanced even at a diluted concentration of 0.1 g/100 mL and a relatively low coating weight of 0.26 g/m2 for the chitosan derivative. Taken together, this study is significant for broadening the coating application of the biomodified chitosan on the packaging papers.