We present high-resolution X-ray observations of the small-diameter supernova remnant (SNR) G349.7+0.2 with Chandra. The overall SNR spectrum can be described by two spectral components. The soft component is in ionization equilibrium and has a temperature of ≈0.8 keV; the hard spectral component has a temperature of ≈1.4 keV, an ionization timescale of ≈5 × 1011 cm-3 s, and enhanced abundances of Si. The spatially resolved spectral modeling shows that S may also be enhanced, at least in some regions. The enhanced abundances clearly point to the presence of an ejecta component in this remnant. Using the available H I and CO data toward G349.7+0. 2 we derive a column density of ≈7 × 1022 cm-2 along the line of sight to the SNR, which is consistent with our X-ray data. The X-ray morphology of G349.7+0.2 is strikingly similar to that at radio wavelengths-an irregular shell with a brighter eastern side-which is consistent with expansion in a medium with a large-scale density gradient. The remnant is known to be interacting with a molecular cloud (from the presence of OH (1720 MHz) masers), but this interaction is probably limited to the central portion of the SNR, as seen in SNR IC 443. We found that H I clouds are present in the SNR region, which supports the notion that G349.7+0.2 belongs to a class of remnants evolving in the intercloud medium (such are IC 443 and W44), which is also responsible for the remnant's morphology. G349.7+0.2 does not have the mixed-morphology found for other maser-emitting SNRs studied to date in X-rays, but its morphology can be explained by a projection model for mixed-morphology SNRs. We have identified a point source close to the center of the SNR with a luminosity of Lx(0.5-10.0 keV) ∼ (0.2-2.3) × 10 34 d22 ergs s-1, which is consistent with that of the compact central objects found in a few other Galactic SNRs.