Poor water solubility and low transfection efficiency of chitosan are major drawbacks for its use as a gene delivery carrier. PEGylation can increase its solubility, and folate conjugation may improve gene transfection efficiency due to promoted uptake of folate receptor-bearing tumor cells. The aim of this study was to synthesize and characterize folate-poly(ethylene glycol)-grafted chitosan (FA-PEG-Chi) for targeted plasmid DNA delivery to tumor cells. Gel electrophoresis study showed strong DNA binding ability of modified chitosan. The pH(50) values, defined as the pH when the transmittance of a polymer solution at 600 nm has reached 50% of the original value, suggested that the water solubility of PEGylated chitosan had improved significantly. Regression analysis of pH(50) value as a function of substitution degree of PEG yielded an almost linear correlation for PEG-Chi and FA-PEG-Chi. The solubility of PEGylated chitosan decreased slightly by further conjugation of folic acid due to the relatively more hydrophobic nature of folic acid when compared to PEG. In addition, the chitosan-based DNA complexes did not induce remarkable cytotoxicity against HEK 293 cells. FA-PEG-Chi can be a promising gene carrier due to its solubility in physiological pH, efficiency in condensing DNA, low cytotoxicity and targeting ability.