A new approach to design multifunctional chitosan based nanohydrogel with enhanced glucose sensitivity, stability, drug loading and release profile are reported. Two approaches were followed for functionalization of chitosan based nanohydrogel with 3-APBA via EDC and 3-APTES. The effective functionalization, structure and morphology of Chitosan based IPN respectively were confirmed by FTIR, SEM and AFM. At physiological conditions, the glucose-induced volume phase transition and release profile of the model drug Alizarin Red with 1,2-diol structure (comparative to insulin as a drug as well as a dye for bio separation) were studied at various glucose concentrations, pH and ionic strengths. The results suggested a new concept for diabetes treatment and diols sensitivity in view of their potential hi-tech applications in self-regulated on–off response to the treatment (drug delivery and bio separation concurrently).