Is it recommended to have a free-standing background chapter to avoid cluttering the main text with different topics? Some general recommendations on master theses are:

a master thesis should be readable without looking up external references
a master thesis should present the topic in a way a someone with a bachelor can understand it

Based on these, I want to have a background chapter which explains particular concepts individually, out of context of the thesis problem. The reader would skip any topic they feel knowledgeable about in this chapter with the confidence that parts of the thesis problem was not skipped when they did so, because the chapter was free-standing.
I feel operating-system internals and malware analysis are not common knowledge, but I don't want to talk about them more than necessary, only the relevant parts. I could weave this into the main text, but I feel it would make it harder to read for both the inexperienced reader and also the experienced reader if at every turn I have to explain other concepts.
My advisor has allowed me to make such a chapter, but I haven’t seen any free-standing background chapters like this in any other papers. What is the consensus?
I don't know if there is a broad consensus but I have seen background chapters in several papers I read recently in my field (computer engineering). If you have the space to spare (I guess a master thesis will not have a strict page limit?), this seems perfectly reasonable. Make sure to only describe things that are relevant to your research, and highlight/foreshadow how they will matter to the rest of the paper. This will also help clearly demarcate your own contribution from prior work.