A novel formulation of composite coating comprising 0.8% chitosan (Chi) incorporating 0.025% CuO nanoparticles (CuO) and 0.5% Indonesian cedarwood essential oil (CEO) was fabricated by casting method. Fourier transform infrared, confocal laser scanning microscopy and scanning electron microscopy analyses were employed to characterise the biocompatibility of each formulation. Additionally, the physico‐chemically properties of the composite coatings were characterised. The colour (L*), light transmission, zeta potential and roughness of Chi were significantly (P < 0.05) altered negatively by the presence of CuO or CEO; the colour (a*, b* and ∆E), apparent viscosity and transparency also changed positively as a consequence of CuO and CEO incorporation. The antifungal features of a pure Chi coating against Penicillium italicum and Penicillium digitatum were improved synergistically by CuO and CEO, confirmed by in vitro and in vivo assays. Composite coatings obtained in this work may have potential applications for active primary food packaging, particularly for fresh postharvest commodities.