Chitosan biodegradable films containing terbinafine HCl (Tr.HCl) were evaluated for their potential drug delivery at a controlled rate. Terbinafine HCl could be loaded at 1.8% w/w of polymer in films, which were translucent and flexible. The effect of drug loading and nature of plasticizers on the in-vitro release of Tr.HCl have been examined. Physicochemical characterization of Tr.HCl via thermal, spectroscopic, X-ray diffraction, and scanning electron microscopy techniques revealed information on the solidstate properties of Tr.HCl as well as chitosan in films. While chitosan was in an amorphous form, Tr.HCl seemed to be present in crystalline form in the films. It was found that the release rate of the drug was directly proportional to drug concentraton. Also medicated chitosan films plasticized with water- soluble plasticizers as glycerol triacetate (GTA), propylene glycol (PG), and polyethylene glycol 400 (PEG 400), produced fast release in comparison with water insoluble plasticizers as glycerol tributyrate (GTB), dimethyl phthalate (DMPH), and diethyl phthalate (DEPH). The characterizations of chitosan films conducted by IR, X-ray, and DSC, showed that no interaction occurred between Tr.HCl and chitosan polymer. The minimum inhibitory concentration (MIC) of the drug against candida albicans was investigated. Results showed that MIC of Tr.HCl was 1.4 µg/ml. The inhibition zone diameter of Tr.HCl chitosan films was higher than that of Tr.HCl normal dressing. Also antifungal activity of Tr.HCl was enhanced in plasticized chitosan films. The results were promising for topical formulation of Tr.HCl in biodegradable chitosan films and have the potential to be used as a novel drug delivery