Novel semi-interpenetrating polymer network (IPN) hydrogel microspheres of chitosan (CS) and hydroxypropyl cellulose (HPC) were prepared by emulsion-cross-linking method using glutaraldehyde (GA) as a cross-linker. Chlorothiazide (CT), a diuretic and anti-hypertensive drug with limited water solubility, was successfully encapsulated into IPN microspheres. Various formulations were prepared by varying the ratio of CS and HPC, percentage drug loading and amount of GA. Microspheres were characterized by Fourier transform infrared (FTIR) spectroscopy to investigate the formation of IPN structure and to confirm the absence of chemical interactions between drug, polymer and cross-linking agent. Scanning electron microscopy (SEM) was performed to study the surface morphology of the microspheres. SEM showed that microspheres have smooth surfaces. Particle size, as measured by laser light scattering technique, gave an average size ranging from 199-359 m. Differential scanning calorimetry (DSC) was performed to know the formation of IPN structure. X-ray diffraction (X-RD) studies were performed to understand the crystalline nature of the drug after encapsulation into IPN microspheres. Encapsulation of drug up to 76% was achieved as measured by UV spectroscopy. Both equilibrium and dynamic swelling experiments were performed in 0.1 N HCl. Diffusion coefficients (D) for water transport through the microspheres were estimated using an empirical equation. In vitro release studies indicated the dependence of release rate on the extent of cross-linking, drug loading and the amount of HPC used to produce the microspheres; slow release was extended up to 12 h. The release data were also fitted to an empirical equation to compute the diffusional exponent (n), which indicated that the release followed the non-Fickian trend.