This study investigates the physicochemical, functional, and biodegradation properties of chitosan–sago starch (CHSS) films incorporated with extra virgin olive oil (EVOO) as a natural bioactive additive. Films containing 0–5% EVOO were characterized using FTIR, XRD, mechanical testing, water uptake analysis, water vapor transmission measurements, TGA–DTG–DSC, antioxidant assays, and soil burial degradation. FTIR confirmed that EVOO did not introduce new chemical bonds but modified the hydrogen-bonding environment of the matrix, while XRD revealed reduced crystallinity with increasing EVOO content. Mechanical properties showed no statistically significant differences among treatments, indicating that EVOO did not compromise film strength or flexibility within the tested range. EVOO increased water uptake due to matrix relaxation yet decreased WVTR and WVP, suggesting simultaneous enhancement of hydrophilic absorption and moisture-barrier resistance. Thermal analyses showed typical three-stage degradation with slight stability improvements at moderate EVOO levels. Antioxidant activity improved significantly with higher EVOO concentrations (from 45.3% to 65.4%), with CHSS5 exhibiting the highest DPPH radical scavenging activity. All films remained highly biodegradable, achieving more than 70% weight loss after 20 days of soil burial. Overall, EVOO incorporation enhanced the functional performance of CHSS films—particularly antioxidant capacity and water vapor barrier properties—while maintaining biodegradability, demonstrating strong potential for sustainable active food packaging applications.