Cellulose fibers (C40 and C80) were extracted from khat (Catha edulis) waste (KW) with chlorine-free process using 40% formic acid/40% acetic acid (C40), and 80% formic acid/80% acetic acid (C80) at the pretreatment stage, followed by further delignification and bleaching stages. Cellulose nanocrystals (CNCs40 and CNCs80) were then isolated from C40 and C80 with sulfuric acid hydrolysis, respectively. Thus, the current study aims to isolate cellulose fibers and CNCs from KW as alternative source. The KW, cellulose fibers, and CNCs were investigated for yield, chemical composition, functionality, crystallinity, morphology, and thermal stability. CNCs were also evaluated for colloidal stability, particle size, and their influence on in vitro diclofenac sodium release from gel formulations preliminarily. The FTIR spectra analysis showed the removal of most hemicellulose and lignin from the cellulose fibers. The XRD results indicated that chemical pretreatments and acid hydrolysis significantly increased the crystallinity of cellulose fibers and CNCs. The cellulose fibers and CNCs exhibited Cellulose Iβ crystalline lattice. TEM analysis revealed formation of needle-shaped nanoscale rods (length: 101.55–162.96 nm; aspect ratio: 12.84–22.73). The hydrodynamic size, polydispersity index, and zeta potential of the CNCS ranged from 222.8–362.8 nm; 0.297–0.461, and -45.7 to -75.3 mV, respectively. CNCs40 exhibited superior properties to CNCs80 in terms of aspect ratio, and colloidal and thermal stability. Gel formulations containing high proportion of CNCs sustained diclofenac sodium release (< 50%/cm2) over 12 h. This study suggests that cellulose fibers and nanocrystals can be successfully obtained from abundant and unexploited source, KW for value-added industrial applications.