A novel controlled release formulation has been developed with PEGylated starch acetate nanoparticles. Biodegradable polymers, such as starch, have been studied for various pharmaceutical applications because of their biocompatibility and biodegradability. Starch acetate is one of the hydrophobic biodegradable polymers currently being used or studied for controlled drug delivery. Polyethylene glycol was conjugated with starch acetate, to obtain an amphiphilic polymeric derivative. On its incubation with insulin solution at the critical micelle concentration, self-aggregated nanoparticles with mean particle size of 32nm are formed. These self-aggregated nanoparticles with associated insulin have enhanced encapsulation efficiency. The mean particle size of these nanoparticles increased with the increase in the molecular weight of PEG. Present study indicated that PEGylated starch acetate nanoparticles are highly bioadhesive and can be utilized as a carrier system for controlled delivery of insulin or other proteins for various therapeutic applications.