Chitosan nanoparticles can advance the pharmacological and therapeutic properties of chemotherapeutic agents by controlling release rates and targeted delivery process, which eliminates the limitations of conventional anti-cancer therapies and they are also safe as well as cost-effective. The aim of present study is to explore the anti-tumour effect of niclosamide in lung and breast cancer cell lines using biocompatible and biodegradable carrier where nanoparticles loaded with hydrophobic drug (niclosamide) were synthesized, characterized and applied as a stable anti-cancer agent. Niclosamide loaded chitosan nanoparticles (Nic-Chi Np's) of size approximately 100–120 nm in diameter containing hydrophobic anti-cancer drug, i.e. niclosamide, were prepared. Physico-chemical characterization confirms that the prepared nanoparticles are spherical, monodispersed and stable in aqueous systems. The therapeutic efficacy of Nic-Chi Np's was evaluated against breast cancer cell line (MCF-7) and human lung cancer cell line (A549). MTT assay reveals the cell viability of the prepared Nic-Chi Np's against A549 and MCF-7 cells and obtained an IC50 value of 8.75 µM and 7.5 µM, respectively. Acridine orange/ethidium bromide dual staining results verified the loss of the majority of the cells by apoptosis. Flow cytometer analysis quantified the generation of intracellular reactive oxygen species (ROS) and signified that exposure to a higher concentration (2 × IC50) of Nic-Chi Np's resulted in elevated ROS generation. Notably, Nic-Chi Np treatment showed more apoptosis and cell death in MCF-7 as compared to A549. Further, the remarkable induction of apoptosis by Nic-Chi Np's was confirmed by semi-quantitative reverse transcription polymerase chain reaction, scanning electron microscopy and cell-cycle analysis. Thus, Nic-Chi Np's may have a great potential even at low concentration for anti-cancer therapy and may replace or substitute more toxic anti-mitotic drugs in the near future.