This study reports on the preparation of chitosan (CS)/polyethylene glycol (PEG) hydrogel beads using sodium diclofenac (DFNa) as a model drug. Following the optimization of the polymer to drug ratio, the chitosan beads were modified by ionic crosslinking with sodium tripolyphosphate (TPP). The CS/PEG/DFNa beads obtained from a (w/w/w) ratio of 1/0.5/0.5 with crosslinking in 10% (w/v) TPP at pH 6.0 for 30 min yielded excellent DFNa encapsulation levels with over 90% loading efficiency. The dissolution profile of DFNa from CS/PEG/DFNa beads demonstrated that this formulation was able to maintain a prolonged drug release for approximately 8 h. Among the formulations tested, the CS/PEG/DFNa (1/0.5/1 (w/w/w)) beads crosslinked with a combination of TPP (10% (w/v) for 30 min) and glutaraldehyde (GD) (5% (w/v)) were able to provide minimal DFNa release in the gastric and duodenal simulated fluids (pH 1.2 and 6.8, respectively) allowing for a principally gradual drug release over 24 h in the intestinal (jejunum and ileum) simulated fluid (pH 7.4). Thus, overall the CS/PEG beads crosslinked with TPP and GD look to be a promising and novel alternative gastrointestinal drug release system.