The main aim of this study was to characterize microstructural, physical, optical, mechanical, water barrier and antimicrobial properties of chitosan-polyvinyl alcohol blend films (CS-PVA) enriched with ethyl lauroyl arginate (LAE) (1–10% w/v) for food packaging applications. The film microstructure was determined by scanning electron microscopy. Active films containing 10% LAE showed cracks on the surface with irregular shape in the cross-section indicating a weaker cohesion of the CS-PVA polymer blend at high LAE concentrations. The possible interaction of CS-PVA blend film with incorporated LAE was also investigated using Fourier-transform infrared (FT-IR) spectroscopy in the attenuated total reflection (ATR) mode. FT-IR/ATR spectra showed a low molecular interaction between the CS-PVA and LAE up to 2.5% while for films containing 5 and 10% LAE such interactions between the functional groups of the CS-PVA matrix and LAE have been detected. The active films were transparent and showed barrier properties against UV and visible light. The incorporation of LAE into the CS-PVA increased the thickness, water solubility, water vapor permeability, and the b* and ΔE* values, while it decreased mechanical properties and transparency (p < 0.05). Active films inhibited the growth of four major food bacterial pathogens including Campylobacter jejuni, Escherichia coli, Listeria monocytogenes and Salmonella typhimurium. Particularly, films containing 5 and 10% LAE were the most effective (p < 0.05). Overall, the characterization of functional properties revealed that CS-PVA blend film incorporated with LAE could be used as an environmentally friendly antimicrobial packaging material to extend the shelf life of food products.