In response to the growing need for eco-friendly flame retardants, researchers have developed bio-based solutions for applying flame-retardant finishes to cotton cloths. The current work presents an innovative phosphorus-functionalized chitosan-banana pseudo-stem composite (P-CBPS), which is applied to cotton cloth through a layer-by-layer technique (P-CBPS-C). P-CBPS-C was well-characterized using XPS, SEM, TGA, and FTIR. Additionally, we explored the application of banana pseudo-stem sap (BPS) and chitosan combined with banana pseudo-stem sap (CBPS) as coatings on cotton fabric (BPS-C and CBPS-C). P-CBPS-C exhibited remarkable flame-retardant properties, maintaining its size and shape upon exposure to flame, producing minimal smoke, and resisting ignition for more than 140 s, in contrast to the control cloth (C-C), BPS-C, and CBPS-C samples, which were completely consumed by the flame. C-C burned away in just 5 s, while BPS-C and CBPS-C samples lasted for 35 and 60 s, respectively, leaving behind a small amount of char residue. The effectiveness of the flame retardancy of P-CBPS-C was rigorously assessed through tests such as the limiting oxygen index (LOI) and the vertical flammability test (VFT). The LOI value increased from 17.76% for the C-C to 48.44%, and the VFT showed a residual char length of 1 cm, demonstrating its promise in fire protection. This study represents an initial effort to create a P-CBPS composite using a cost-effective and simple method, proving its effectiveness as a flame-retardant material.