A biodegradable scaffold in tissue engineering serves as a temporary skeleton to accommodate and stimulate new tissue growth. Here we report on the development of a biodegradable porous scaffold made from naturally derived chitosan and alginate polymers with significantly improved mechanical and biological properties as compared to its chitosan counterpart. Enhanced mechanical properties were attributable to the formation of a complex structure of chitosan and alginate. Bone-forming osteoblasts readily attached to the chitosan-alginate scaffold, proliferated well, and deposited calcified matrix. The in vivo study showed that the hybrid scaffold had a high degree of tissue compatibility. Calcium deposition occurred as early as the fourth week after implantation. The chitosan-alginate scaffold can be prepared from solutions of physiological pH, which may provide a favorable environment for incorporating proteins with less risk of denaturation. Coacervation of chitosan and alginate combined with liquid-solid separation provides a scaffold with high porosity, and mechanical and biological properties suitable for rapid advancement into clinical trials.