In recent years, plasma electrolytic oxidation (PEO) of Mg alloys improved the alloy's corrosion inhibition, biomineralisation and cytocompatibility properties needed for temporary implant applications. However, the properties of ceramic coating on PEO-treated Mg alloys can be further enhanced by post-treatment with biopolymer. The present work focuses on fabricating an organic-inorganic composite layer via PEO treatment of ZM21 alloy, followed by forming a biopolymer (chitosan) topcoat. Incorporating ceramic particles such as hydroxyapatite (HA) and bioactive glass (BG) in the chitosan topcoat was also examined. The results showed that the thick and uniform composite coating fabricated using chitosan with BG particles has enhanced corrosion resistance up to 105 folds (icorr = 4.56 × 10−10 mA/cm2) when compared to the plasma electrolytic oxidised alloy (icorr = 1.07 × 10−5 mA/cm2). Although chitosan is a bioactive and biocompatible polymer, adding BG particles into the chitosan has further enhanced the bioactivity rate and favoured the apatite formation over the surface. The PEO-treated ZM21 alloy with BG-chitosan hybrid coating showed better cell viability in all in-vitro cell compatibility tests, attributed to improved degradation resistance. Considering all the physiochemical and biochemical outcomes, the BG-chitosan hybrid coated plasma electrolytic oxidised Mg alloy could be a promising contender for temporary implant applications.