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Introduction: The oral insulin delivery is the most familiar, easy and patient friendly of all the routes of insulin applications. The aim of this study was to generate a new chitosan coated insulin nanoliposomes and evaluate their potential for the delivery of insulin. Materials & Methods: Nanoliposomes encapsulated insulin with negative surface charge was prepared by reverse phase evaporation method. For such a preparation, nanoliposomes lecithin, cholesterol, cetyl-diphosphate and β-cyclodexterin were used. Then, nanoliposomes were coated by means of incubation with the chitosan solution. The encapsulation efficiency of the prepared nanoliposomes was measured by spectrophotometry technique after dissolution of the nanoparticles. The hypoglycemic efficacies of chitosan-coated insulin nanoliposomes were investigated by monitoring the blood glucose level after oral administration to diabetic rabbits. Findings: Insulin entrapment efficacy for the prepared nanoliposomes by application of the new formulation was significantly (p<0.05) higher (79±0.16) than those of other formulations, respectively. The in vivo result clearly indicated that the insulin-loaded nanoliposomes could effectively reduce the blood glucose level in diabetic rabbits. Discussion & Conclusion: The results clearly suggested that the prepared nanoliposomes could be considered a good candidate for oral insulin delivery