Cross-linked beads of diclofenac sodium with chitosan like 86.60%DOD, 87.82%DOD, 93.10%DOD and their different ratios with different concentrations of sodium tri-polyphosphate (STPP) were done to develop a sustained release system. Cross-linked beads were formulated using different grades of deacetylated chitosan like 86.60% DOD, 87.82%DOD, 93.10% DOD, and their different ratios with different concentration of sodium tri-polyphosphate. The crosslinking were done by ionotropic gelation method. Beads were characterized by DSC and SEM. The effect of concentration of sodium tri-polyphosphate, entrapment efficiency and percentage of swelling on drug release profiles of beads. Stability studies were conducted as per ICH Guidelines at 40°C/75% RH for 6 months. The diclofenac sodium content within the beads decreased with increasing STPP concentration. Thermal analysis shows there was melting of chitosan and diclofenac sodium respectively indicating molecular dispersion of drug in chitosan beads. SEM showed the beads were spherical in shape and rough in surface. It is also observed that as the drug to polymer ratio decreases, entrapment efficiency increases. It is observed that degree of swelling decreased with increasing concentration of STPP. Increased cross-linking reduced the degree of swelling and drug release. It can be concluded that that utilization of multiparticulate system is an effective system for obtaining sustained release of drugs.