Chitosan-based functional materials have attracted considerable attention worldwide for applications in wound healing, especially in skin wound healing, due to their efficiency in hemostasis, anti-bacterial, and skin regeneration. Various chitosan-based products have been developed for skin wound healing applications, but most of these face limitations in either efficacy or cost-effectiveness. Therefore, there is a need to develop a unique material that can handle all of these concerns and be utilized for acute and chronic wounds. This study investigated mechanisms of new chitosan-based hydrocolloid patches in inflammatory reduction and skin formation by using wound-induced Sprague Dawley Rats. Our study combined a hydrocolloid patch with chitosan to achieve a practical and accessible medical patch that would enhance skin wound healing. Our chitosan-embedded patch has shown a significant influence by preventing wound expansion and inflammation increment on Sprague Dawley rat models. The chitosan patch significantly increased the wound healing rate and accelerated the inflammatory stage by suppressing pro-inflammatory cytokines activity (e.g., TNF-α, IL-6, MCP-1, and IL-1β). Moreover, the product was effective in promoting skin regeneration, demonstrated by the increase in the number of fibroblasts through specific biomarkers (e.g., vimentin, α-SMA, Ki-67, collagen I, and TGF-β1). Our study on the chitosan-based hydrocolloid patches not only elucidated mechanisms of reducing inflammation and enhancing proliferation, but also provided a cost-effective method for skin wound dressing.