Lung cancer, the deadliest solid tumor among all types of cancer, remains difficult to treat. This is a result of unavoidable exposure to carcinogens, poor diagnosis, the lack of targeted drug delivery platforms and limitations associated with delivery of drug to deep lung tissues. Development of a non-invasive, patient-convenient formula for the targeted delivery of chemotherapeutics to cancer in deep lung tissue is the aim of this study. The formulation consisted of inhalable polyvinylpyrrolidone (PVP)/maltodextrin (MD)-based microparticles (MPs) encapsulating chitosan (CS) nanoparticles (NPs) loaded with either drug only or drug and magnetic nanoparticles (MNPs). Drug release from CS NPs was enhanced with the aid of MNPs by a factor of 1.7 in response to external magnetic field. Preferential toxicity by CS NPs was shown towards tumor cells (A549) in comparison to cultured fibroblasts (L929). The prepared spray freeze dried (SFD) powders for CS NPs and CS MNPs were of the same size at ∼6 μm. They had a fine particle fraction (FPF≤5.2 μm) of 40–42% w/w and mass median aerodynamic diameter (MMAD) of 5–6 μm as determined by the Next Generation Impactor (NGI). SFD-MPs of CS MNPs possess higher MMAD due to the high density associated with encapsulated MNPs. The developed formulation demonstrates several capabilities including tissue targeting, controlled drug release, and the possible imaging and diagnostic values (due to its MNPs content) and therefore represents an improved therapeutic platform for drug delivery to cancer in deep lung tissue.