Objective: The purpose of this study was to prepare and evaluate chitosan (CS) gel containing metformin hydrochloride (MET)-loaded polycaprolactone (PCL) nanoparticles (NPs) for topical treatment of melanoma. Significance: Topical administration of MET-PCL NPs-CS gel improves penetration of drug, decreases side effects, and increases efficacy of treatment. Methods: MET-PCL NPs were prepared by double emulsion method. Particle size, charge, encapsulation efficiency (EE), release, and morphology were evaluated. MET-PCL NPs-CS gel formulation was characterized in terms of organoleptic properties, pH, gelling time, viscosity, spreadability, release, and morphology. Cytotoxicity was performed on B16F10 cells. Ex vivo permeability was done with pig skin. Results: The size, charge, and EE were found to be 180 ± 10 nm, −11.4 mV, and 93%. SEM images showed that NPs were spherical and smooth. An initial burst release followed by a slower release was observed. MET-PCL NPs-CS gel was found to be transparent. The pH was 4.9 ± 0.05. The gelation time was 1.6 ± 0.2 min. The viscosity results confirm pseudoplastic behavior of gel. The spreadability by % area was 392 ± 6.4 cm. The images showed that gelling network of CS gel was composed of suspended NPs. The viscosity was between 554 and 3503 cP. MET-PCL NPs-CS gel showed prolonged release up to 72 h. On B16F10 cells, gel showed higher cytotoxicity compared to MET solution. MET-PCL NPs-CS gel had twofold higher permeability in pig skin compared with MET-CS gel. Conclusion: Topical administration of MET-PCL NPs-CS gel into the skin resulted in improved dermal penetration and this promising approach may be of value in effective treatment of melanoma and other skin cancers.