Sugar rich diet induces inflammation and insulin resistance mainly through gut microbiota alteration. Gut microflora dysbiosis increases plasma lipopolysaccharide and reduces short chain fatty acids to impair the insulin signaling cascades by different molecular pathways to progress into diabetes. Chitosan based formulations have major significance in insulin delivery system due to their ability to protect the insulin from enzymatic degradation and its efficient inter-epithelial transport. This study was designed to investigate the effect of chitosan administration on gut microflora mediated signaling pathways to prevent the diet induced diabetes. Male wistar rats were divided into non-diabetic group with a normal diet (CD), diabetic group with high sucrose diet (HSD) and treatment group with HSD and chitosan (60 mg/kg). After 8 weeks of the study, significant alterations in two major gut dominant microbial phyla i.e Firmicutes and Bacteroides and four dominant microbial species i.e. Lactobacilli, Bifidobacteria, Escherichia and Clostridia were observed in HSD group compared to CD. This microbial dysbiosis in dominant phyla was significantly prevented in chitosan administrated HSD group. Chitosan administration had also reduced the HSD induced activation of Toll like receptors and Nod like receptors signaling pathways compared to HSD control group to reduce the inflammation. These suggest that chitosan can prevent the progression of Type 2 Diabetes through gut microbiota alteration, reducing endotoxin and microbes mediated inflammation.