Chitosan is functionalized with poly(ethylene glycol) methyl ether (mPEG) at the amino and hydroxyl groups via a single step reaction in a homogeneous aqueous system. A chitosan aqueous solution obtained from the mixture of chitosan and hydroxybenzotriazole (HOBt) in water is a key factor in providing mild conditions to conjugate mPEG by using a carbodiimide conjugating agent. The reaction at ambient temperature for 24 h gives chitosan-g-mPEG with water solubility with mPEG content as high as 42%. This work demonstrates that a water-soluble chitosan-HOBt complex is an effective system for the preparation of chitosan derivatives via the aqueous system without the use of acids or organic solvents. (c) 2006 Wiley Periodicals, Inc.