This study aims to develop water-soluble low molecular weight chitosan (LMWC) nanoencapsules with lutein to improve its bioavailability. Lutein-LMWC nanoencapsules were prepared, characterized and bioavailability was studied in vitro and in vivo with lutein in mixed micelles (control). The particle size ranged between 80-600 nm, which was confirmed by Atomic Force Microscope. The interaction between LMWC and lutein in nanocencapsules by (1)H and (13)C NMR showed the essentiality of water molecules to hold the lutein between LMWC chains of nanoparticle with a reversible weak bond. Bioavailability of lutein (200 μM) in vitro showed that lutein-LMWC nanoencapsules was significantly higher (27.7%) than control. Postprandial lutein level in the plasma (54.5%), liver (53.9%) and eyes (62.8%) of mice fed on nanoencapsulated lutein were higher than the control. LMWC may serve as novel carrier for enhancing the lutein bioavailability and can be suggested as the better dietary compound in food and pharmaceutical applications.