The present study deals with the biosynthesis of palladium nanoparticles (PdNPs) using Agaricus bisporus and exploring its potential biological applications. The synthesized PdNPs were characterized by UV–visible, FTIR and XRD techniques. Microscopic analyses revealed the triangular (SEM and AFM) and spherical (TEM) morphologies of the nanoparticles with nanosize dimension ranging from 13 to 18 nm. The surface charge of the PdNPs were identified with the help of zeta potential and found to be negatively charged (− 24.3 mV). The PdNPs exhibited good antioxidant effect against DPPH free radicals with maximum radical scavenging activity of 77% using 50 μg/ml. FTIR spectra of the final DPPH solution depicted sharp intense signals at 1018 cm⁻¹ (polysaccharides) and 3342 cm⁻¹ (phenolic acids) evidencing the role of these bio functional groups in neutralizing the free radicals. Antibacterial assay revealed that PdNPs exhibited enhanced growth inhibition effect against gram positive bacteria (S. auerus; S. pyrogens; B. subtilis) than gram negative bacterial pathogens (E. aerogenes; K. pneumoniae; P. vulgaris). Anti-inflammatory activity performed with RBC cells showing 87% of activity for biosynthesized PdNPs. MTT assay demonstrated that PdNPs exhibited excellent cytotoxic effect against PK13 cell lines. Maximum growth inhibition of 79% was observed for the maximum dose (50 µg/ml) with IC50 value of 26.1 µg/ml.