In recent years, chitosan and its different derivatives have been extensively used in surface modification and functional finishing of textiles. In this study, wool yarns used in handmade carpet were treated with different concentrations of chitosan-poly (amidoamine) dendrimer hybrid (Ch-PAMAM) and characterized by scanning electron microscope (SEM), and their dyeing properties were investigated through dyeing with madder as natural dye. SEM images showed that Ch-PAMAM was almost evenly grafted on the wool surface which resulted in significant improvement in dyeing characteristics with madder. Indeed, treated wool exhibited lower optimal dyeing temperature and dyeing time and required lower amount of madder dye to achieve a desired color strength, as compared to raw wool. Moreover, due to its “bio-mordant” role, Ch-PAMAM was replaced with metal mordant and acid auxiliary in wool dyeing with natural dye. In addition, rub and light fastness of dyed treated wool was improved to some extent. The results of this study confirmed that Ch-PAMAM can be effectively used as alternative bio-mordant in eco-friendly dyeing of wool with madder dye.