First how bad is the rust? Light coating or so bad it has caused holes? How pervasive is it? One or two small spots or over a large portion of the frame? Is it in a critical place like at the highly stressed firewall area or a low stress place like the frame horns? These are important questions which have a bearing on how you would attack the problem.
The first general principle is to get rid of whatever rust is there down to white metal. Unless it is stopped, nothing else matters. Then if it is too severe, over too much of the area or in too critical a location, seriously consider replacing the frame with a good one. If there is no replacement available, then repair is the only option. Yes, it can be repaired with cold rolled steel of preferably the exact same gauge as the original. Cut out the old cancer and weld in the replacement. It goes without saying that the welding skill need to be top notch since this is a life and death issue. If the cancer is in a non-critical place (not too many of those on a frame) then once it is clean it can be bondo'd and painted.
If you are doing a frame off restoration, the wise thing to do is have the entire frame sand blasted to white metal so it can be evaluated, repaired if necessary and protected from further rust before reassembly. I prefer to have my frame powder coated which includes a thorough sand blasting and maintenance free, life time protection from the coating.
I gotta antique studabaker truck that i pulled outta
a gulley in the middle of some woods.It had some
rusted holes all over the chassis.I sand blasted it
with low grit mix equivalant to 100 grit sandpaper.
I cut from around the rusted holes in a square shape
to make it easyer to cut a replacement piece of steel.
I grinded lightly on the edges of the cut out to make
a but joint.I then Gas welded my pieces of metal that
where the same guage as the chassis steel.I was
sure to pressure test my welds after wurds.They have
done well;ive drove the truck 145 miles before and
it handles great for a old POS.
I wouldnt replace the chassis unless your one of those
people who's method of fixing things is replacing them.
If thats the case just take it to the local auto shop! they
drop crate engines in cars and say they built the thing to.
By the way dont leave bare metal exposed to open air
to long it can rust over;in just a couple of hours.
EDIT:Ive seen people fix them with JBWeld to! if your
broke you can buy JB Weld for about $10 a tube.It's
got the tencil strength of mild steel so your safe.
Ummm. . . that's not quite right about JB weld. For sure it is a good grade epoxy, but it doesn't even come close to having the same tensile strength of mild steel. Epoxies have a tensile strength in the 2,500psi range whereas cold rolled steels are in the 70,000psi range. Use JB weld for sure in places where you want a good bond. However there is no replacement for steel welded in place to repair stressed steel.