Chitosan-based carriers have important potential applications for the administration of drugs. In the present study, topical gel formulations of terbinafine hydrochloride (T-HCl) were prepared using different types of chitosan at different molecular weight, and the antifungal inhibitory activity was evaluated to suggest an effective formulation for the treatment of fungal infections. The characteristics of gel formulations were determined with viscosity measurements and texture profile analysis. Stability studies were performed at different temperatures during 3 months. The ex vivo permeation properties were studied through rat skin by using Franz diffusion cells. The antifungal inhibitory activity of formulations on Candida species and filamentous fungi was also examined with agar-cup method. The microbiological assay was found suitable for determination of in vitro antifungal activity of T-HCl. A marketed product was used to compare the results. The antifungal activity of T-HCl significantly increased when it was introduced into the chitosan gels. A higher drug release and the highest zone of inhibition were obtained from gels prepared with the lowest molecular weight chitosan (Protasan UP CL 213) compared to that of other chitosan gels and marketed product. These results indicated the advantages of the suggested formulations for topical antifungal therapy against Candida species and filamentous fungi.