Water pollution is among the most hazardous problems that threaten human health worldwide. Chitosan is a marvelous bioactive polymer that could be produced from fungal mycelia. This study was conducted to produce chitosan from Cunninghamella elegans and to use it for water pollutants elimination, e.g. heavy metals and waterborne microorganisms, and to investigate its antibacterial mode of action against Escherichia coli. The produced fungal chitosan had a deacetylation degree of 81%, a molecular weight of 92.73 KDa and a matched FT-IR spectrum with standard shrimp chitosan. Fungal chitosan exhibited remarkable antimicrobial activity against E. coli, Staphylococcus aureus and Candida albicans. Chitosan was proved as en effective metal adsorbent, toward the examined metal ions, Cu(2+), Zn(2+) and Pb(2+), and its adsorption capacity greatly increased with the increasing of metal concentration, especially for Cu and Zn. The scanning electron micrographs, of treated E. coli cells with fungal chitosan, indicated that the cells began to lyse and combine after 3h of exposure and chitosan particles attached to the combined cells and, after 12h from exposure, the entire bacterial cell walls were fully disrupted and lysed. Therefore, fungal chitosan could be recommended, as a bioactive, renewable, ecofriendly and cost effective material, for overcoming water pollution problems, from chemical and microbial origins.