The emulsifying properties of a natural cationic polysaccharide (chitosan) were improved by in situ conjugation with a natural essential oil (cinnamaldehyde, CA) during homogenization. In the absence of CA, chitosan-coated medium-chain triglyceride droplets were highly susceptible to creaming and coalescence at pH values ranging from 1 to 6.5. However, incorporation of relatively low levels of CA in the oil phase greatly improved the formation and stability of oil-in-water emulsions. These effects were attributed to two main factors: (i) covalent binding of lipophilic CA moieties to hydrophilic chitosan chains leading to conjugates with a good surface activity and (ii) interfacial cross-linking of adsorbed chitosan layers by CA leading to the formation of a rigid polymeric coating around the lipid droplets, which improved their stability against coalescence. The encapsulation technique developed in this study may be useful for applications in a range of commercial products; regulatory and flavor issues associated with chitosan and CA would have to be addressed.