You cannot Play Chaos Difficulty until you have completed the game at least once.
After, you can start Chapter 1 on Arcade Mode. (You have also unlocked Arcade Mode. Which also has an Achievement related to it).Start Up Arcade mode on Chaos Difficulty.
Make sure to complete the level. And if you want the "Collector" Achievement. Make sure you get ALL 3 Medals. To get all 3 Medals, you need to:- Not Be Seen
- Not Be Heard
- Cannot Hide in a Closet
Here is my Video Guide: