The scaffolds for bone tissue engineering should be porous to harbor the growth of new tissue ingrowths, biodegradable with no toxic end products, and biocompatible with no cytotoxicity. In this study we report that Diopside (CaMgSi2O6) (Dp) particles can be synthesized at a more economical route using the agricultural waste rice straw. Along with chitosan (CS) matrix, the CS/Dp scaffolds were synthesized and evaluated for their physico-chemical properties by SEM, EDS, XRD, FT-IR studies. Addition of Dp particles to chitosan matrix decreased water retention capacity but there was no change in their degradation properties. Dp particles in CS/Dp scaffolds exhibited good affinity for protein adsorption. Apatite forming ability of the CS/Dp scaffolds depicted their bioactivity. These scaffolds were found to be compatible with human osteoblastic cells (MG-63) and the cells were able to attach and proliferate with extended morphology on the CS/Dp membranes. The CS/Dp scaffolds supported up regulation of mRNA expression of osteoblast differentiation marker genes such alkaline phosphatase (ALP), type I collagen (COL-I) in the presence of osteogenic environment suggesting their osteo-conductive nature. In vivo rat model system identified that the CS/Dp scaffolds are biocompatible and may have the property of recruiting cells due to deposition of collagen. Hence, these studies suggest that the prepared CS/Dp scaffolds have potential applications towards bone tissue engineering.