The ongoing work describes the catalytic evaluation of γ‐Fe2O3@Ag‐S‐CH2‐COOH magnetic nanoparticles utilizing γ‐Fe2O3 obtained from waste iron rust for one‐pot synthesis of 2,3‐dihydroquinazolin‐4(1H)‐ones. As‐prepared γ‐Fe2O3@Ag‐S‐CH2‐COOH nanoparticles were characterized by Fourier transform infrared spectroscopy (FT‐IR), X‐ray diffraction (XRD), scanning electron microscopy (SEM), energy‐dispersive X‐ray spectroscopy (EDX), dynamic light scattering (DLS), transmission electron microscopy (TEM), X‐ray photoelectron spectroscopy (XPS), and Brunauer–Emmett–Teller (BET) technique. The catalytic performance of greener γ‐Fe2O3@Ag‐S‐CH2‐COOH nanoparticles was utilized in the synthesis of 2,3‐dihydroquinazolin‐4(1H)‐ones. The excellent catalytic performance was shown by magnetic nanoparticles in addition to its ease of separation by an external magnet and can be recycled for five consecutive turns without significant loss of catalytic activity. Furthermore, the synthesized 2,3‐dihydroquinazolin‐4(1H)‐ones were confirmed by FT‐IR, 1H, 13C nuclear magnetic resonance (NMR), and mass spectrometry. Moreover, the synthesized 2,3‐dihydroquinazolin‐4(1H)‐ones were evaluated for their anticancer efficiency against the human skin cancer cell line B16F10 along with molecular docking investigation.