In the study, we intend to design a suitable localized drug delivery system (LDDS) with chitosan and poly vinyl alcohol (PVA) for treating serve periodontitis. For that, a novel formulation based on the incorporation of chitosan-based microspheres into PVA film was prepared. As the core parts of the novel formulation, chitosan-based microspheres were prepared form chitosan and/or carboxymethyl-chitosan (CM-chitosan) by using water-in-oil emulsification method. Then basic in vitro and in vivo experiments focusing on biocompatibility and biodegradability of the two chitosan-based microspheres were carried out to evaluate the feasibility of the novel LDDS. In vitro tests, besides having no hemolysis, chitosan microsphere (Cs1-Ms), and CM-chitosan microsphere (Cs2-Ms) have adsorbed little proteins on their surfaces. Moreover, plasma proteins adsorbed on Cs2-Ms, most of which can easily desorbed, are much less than that adsorbed on Cs1-Ms. This indicates that Cs2-Ms perhaps has better biocompatibility than Cs1-Ms. In vivo tests, Cs1-Ms and Cs2-Ms were subcutaneously implanted in rat to investigate the host tissue inflammatory response. Implantations of Cs1-Ms and Cs2-Ms induced a little more severe inflammation when compared with the implantation of PVA film. However, the difference on in vivo biocompatibility between Cs1-Ms and Cs2-Ms could not be confirmed by the implantation model of our experiments. Both Cs1-Ms and Cs2-Ms had suffered bioerosion when they were subcutaneously implanted. The hard and compact matrixes of Cs1-Ms were degraded very slowly, and only some trifling degradation had been found until 4 weeks of implantation. In contrast, Cs2-Ms is soft and more hydrophilic, and can be quickly degraded in a form of diffluence by the physiological circumstance. All these results suggested that Cs2-Ms had better potentials used as core parts of the novel designed LDDS in the future developments.