Bis(2-hydroxyethyl)terephthalate (BHET), polyethylene glycol (PEG) and hexamethylene diisocyanate (HMDI) are reacted together to synthesize polyurethane (PU). BHET is prepared by the glycolysis of polyethylene terephthalate (PET) waste. Insulin encapsulated with polyurethane-alginate nanoparticles is developed by crosslinking the sodium alginate with calcium chloride. X-ray diffraction (XRD) patterns of PU, calcium alginate (ALG) and crosslinked PU-ALG films demonstrate their amorphous nature. Fourier transform infrared (FT-IR) spectroscopy of the blend shows distinct characteristic peaks for both PU and alginate, indicating good dispersion of both the polymers. In this work, our aim was to develop a controlled oral release system for insulin and in this regard polyurethane-alginate nanoparticles (NPs) were formulated. The protective effect of the NPs for insulin delivery towards enzymatic degradation was determined during the in vitro release study at a pH of 1.2. PU-ALG NPs showed controlled release of insulin from these nanoparticles till the 8th hour in a phosphate buffer solution (pH 7.4 and pH 6.8). Variation of the blood glucose level in diabetic mice with different doses of insulin loaded mucoadhesive PU-ALG nanoparticles was observed. Diabetic mice showed a decrease in the blood glucose level and it returned to its initial level after the 13th hour; the calculated bioavailability is found to be sufficiently high (8.75%). © 2016 The Royal Society of Chemistry.