Ashley Westwood had cancelled out Clive Platt's first-half opener for the Dons, before Walters raced clear to seal City's first win in nine games with an 88th-minute strike.
The Dons started brightly and Ben Chorley had an early chance which he hit straight at visiting goalkeeper John Danby, after Chester failed to clear a Dean Lewington free-kick
Gareth Edds and Paul Mitchell also went close as the hosts kept up the pressure, but Chester almost took the lead against the run of play with a curling Laurence Wilson shot which Dons goalkeeper Adolfo Baines palmed away.
The deadlock was eventually broken in the 35th minute when Scott Taylor's mis-hit shot found its way to Platt, who applied a cool finish as the Chester defence appealed for offside.
Dons pushed forward in search of a second and could well have been awarded a penalty just after the break when Taylor's shot appeared to hit Westwood's hand.
The decision proved costly when, after 57 minutes, Westwood met Roberto Martinez's low cross with a half-volley which flew into the corner of the net.
Danby made a crucial save to deny Platt, before Walters raced onto Dean Bennett's throughball and rounded keeper Baines before slotting home.