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This paper presents a newly developed finite-difference time-domain (FDTD) technique, referred to as BI-FDTD, for modeling electromagnetic wave interactions with bi-isotropic (BI) media. The theoretical foundation for the BI-FDTD method will be developed based on a wavefield decomposition. The main advantage of this approach is that the two sets of wavefields are uncoupled and can be viewed as propagating in an equivalent isotropic medium, which makes it possible to readily apply conventional FDTD analysis techniques. The BI-FDTD scheme will also be extended to include the dispersive nature of chiral media, an important subclass of bi-isotropic media. This extension represents the first of its kind in the FDTD community. Validations of this new model are demonstrated for a chiral half-space and a chiral slab.