The purpose of this study is to develop novel nanoparticles based on polyion complex formation between low molecular weight water-soluble chitosan (LMWSC) and all-trans retinoic acid (atRA). LMWSC nanoparticles encapsulating atRA based on polyion complex were prepared by mixing of atRA into LMWSC aqueous solution using ultrasonication. In FTIR spectra, the carbonyl group of atRA at 1690 $cm^{-1}$ disappeared or decreased when ion complexes were formed between LMWSC and atRA. In ${1}^H$ NMR spectra, specific peaks of atRA disappeared when atRA-encapsulated LMWSC (RAC) nanoparticles were reconstituted into $D_{2}O$ while specific peaks both of atRA and LMWSC appeared in $D_{2}O$/DMSO (1/3, v/v) mixture. XRD patterns also showed that the crystal peaks of atRA were disappeared by encapsulation into LMWSC nanoparticles. LMWSC nanoparticles encapsulating atRA have spherical shapes with particle size below 200 nm. The mechanism of encapsulation of atRA into LMWSC nanoparticles was thought to be an ion complex formation between LMWSC and atRA. LMWSC nanoparticles showed high atRA loading efficiency over 90$\%$ (w/w). AtRA was continuously released from nanoparticles over 10 days. In in vitro cell cytotoxicity test, free atRA showed higher cytotoxic effect against CT 26 colon carcinoma cell line on 1 day. However, RAC nanoparticles showed similar cytotoxicity against CT 26 cells on 2 day. These results suggest the potential for the introduction of LMWSC nanoparticles into various biomedical fields such as drug delivery.