The green synthesis of supported noble metal nanoparticles is now the most exciting field for various catalytic applications as well as biomedical applications. In this paper we report a novel synthesis method of a polymer consisting of silver nanoparticles (AgNPs) using immobilized microorganisms in alginate beads. Microorganisms present in the polymer reduce aqueous AgNO3 to AgNPs which get trapped in the polymer to form Ag-Alginate (Ag-Alg) biohydrogel. The formed biohydrogel was characterized by UV-visible (UV-Vis) spectroscopy, dynamic light scattering (DLS) spectroscopy, X-ray diffraction (XRD), Fourier transform infrared (FT-IR) spectroscopy, scanning electron microscopy (SEM), energy dispersive X-ray (EDS), transmission electron microscopy (TEM), and selected area electron diffraction (SAED) analysis. TEM analysis showed that less than 15 nm AgNPs formed in the polymer. The Ag-Alg biohydrogel exhibited efficient heterogeneous catalytic activity in the reduction of 4-nitrophenol to 4-aminophenol in the presence of NaBH4 in aqueous solution with durable reusability. Also this biohydrogel showed excellent antimicrobial activity against pathogenic bacteria (antibiotic resistant) and fungi. The described synthesis method of Ag-Alg biohydrogel can be considered robust, cost effective and eco-friendly. The formed highly catalytic active biohydrogel can be used as catalyst in industries and drinking water purification.