Chitosan film, when prepared from chitosan solution in acetic acid, possesses some unpleasant properties, such as its remaining acid content and poor mechanical properties. This study aimed to develop a new chitosan aqueous dispersion as a film-forming material with a lower acid content and improved mechanical properties. Chitosan aqueous dispersions were prepared by solvent displacement method. The system consisted of chitosan/cetyl alcohol particles stabilized with polyvinyl alcohol. Compared to the film from chitosan solution, the film from the chitosan aqueous dispersion had 4.9 times lower acid content, a higher tensile strength, a higher elongation at break, lower water uptake and weight loss, and lower drug permeability. These results indicated the improved mechanical properties and the decreased drug diffusion rate resulting from the chitosan dispersion-based film. Moreover, the addition of a plasticizer, in particular glycerol, could improve the mechanical properties of the chitosan dispersion-based film. The optimum formulation consisted of 1 %w/v chitosan, 0.1 %w/v cetyl alcohol, 0.1 %w/v polyvinyl alcohol and glycerol (20 %w/w based on polymer weight). In conclusion, the results demonstrated that chitosan aqueous dispersion could be used as a pharmaceutical film-forming material.