Here, zirconium oxide nanoparticles (ZrO2 NPs) were incorporated for the first time in organic-inorganic hybrid composites containing chitosan, poly(ethylene glycol) and nano-hydroxypatite (CS-PEG-HA) to develop bone-like nanocomposites for bone tissue engineering application. These nanocomposites were characterized by FT-IR, XRD, TEM combined with SAED. SEM images and porosity measurements revealed highly porous structure having pore size of less than 1 μm to 10 μm. Enhanced water absorption capacity and mechanical strengths were obtained compared to previously reported CS-PEG-HA composite after addition of 0.1–0.3 wt% of ZrO2 NPs into these nanocomposites. The mechanical strengths and porosities were similar to that of human spongy bone. Strong antimicrobial effects against gram-negative and gram-positive bacterial strains were also observed. Along with getting low alkalinity pH (7.4) values, similar to the pH of human plasma, hemocompatibility and cytocompatibility with osteoblastic MG-63 cells were also established for these nanocomposites. Addition of 15 wt% HA-ZrO2 (having 0.3 wt% ZrO2 NPs) into CS-PEG (55:30 wt%) composite resulted in greatest mechanical strength, porosity, antimicrobial property and cytocompatibility along with suitable water absorption capacity and compatibility with human pH and blood. Thus, this nanocomposite could serve as a potential candidate to be used for bone tissue engineering. © 2016 Elsevier B.V.