In this study liposome coated with low molecular weight chitosan (LCH) was proposed and investigated its in vitro and in vivo properties, and its potential use in ocular drug delivery was evaluated. LCH with a molecular weight of 8 kDa was prepared and coated on liposome loaded with diclofenac sodium. The LCH coating changed the liposome surface charge and slightly increased its particle size, while the drug encapsulation was not affected. After coating, the liposome displayed a prolonged in vitro drug release profile. LCH coated liposome also demonstrated an improved physicochemical stability at 25 °C in a 30-day storage period. The ocular bioadhesion property was evaluated by rabbit in vivo precorneal retention, and LCH coated liposome achieved a significantly prolonged retention compared with non-coated liposome or drug solution. The LCH coating also displayed a potential penetration enhancing effect for transcorneal delivery of the drug. In the ocular tolerance study, no irritation or toxicity was caused by continual administration of LCH coated liposome in a total period of 7 days. In conclusion, the LCH coating significantly modified the properties of liposome and brought a series of notable advantages for ocular drug delivery.