In response to the growing need for eco-friendly flame retardants, researchers have developed bio-based solutions for applying flame-retardant finishes to cotton fabrics. The current work presents an innovative phosphorus-functionalized chitosan-banana pseudo-stem composite (P-CBPS), which is applied to cotton fabric through a layer-by-layer technique (P-CBPS-C). The P-CBPS-C was well-characterized using XPS, SEM, TGA, and FTIR. Additionally, we explored the application of banana pseudo stem (BPS) and chitosan combined with banana pseudo stem (CBPS) as coatings on cotton cloth (BPS-C and CBPS-C). P-CBPS-C exhibited remarkable flame-retardant properties, maintaining its size and shape upon exposure to flame, producing minimal smoke, and resisting ignition for more than 140 seconds, in contrast to the control cloth (C-C), BPS-C, and CBPS-C samples, which were completely consumed by the flame. Control cloth burned away in just 5 seconds, while BPS-C and CBPS-C samples lasted 35 and 60 s, respectively, leaving behind a small amount of char residue. The effectiveness of the flame retardancy of P-CBPS-C was rigorously assessed through tests such as the Limiting Oxygen Index (LOI) and the Vertical Flammability Test (VFT). The LOI value increased from 17.76% for the control cloth to 48.44%, and the VFT showed a residual char length of 1 cm, demonstrating its promise in fire protection. This study represents an initial effort to create a phosphorus-modified chitosan banana pseudo stem composite (P-CBPS-C) using a cost-effective and simple method, proving its effectiveness as a flame-retardant material.