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Alginate hydrogel/zinc oxide nanoparticles (nZnO) composite bandage was developed by freeze-dry method from the mixture of nZnO and alginate hydrogel. The developed composite bandage was porous with porosity at a range of 60%–70%. The swelling ratios of the bandages decreased with increasing concentrations of nZnO. The composite bandages with nZnO incorporation showed controlled degradation profile and faster blood clotting ability when compared to the KALTOSTAT® and control bandages without nZnO. The prepared composite bandages exhibited excellent antimicrobial activity against Escherichia coli, Staphylococcus aureus, Candida albicans, and methicillin resistant S. aureus (MRSA). Cytocompatibility evaluation of the prepared composite bandages done on human dermal fibroblast cells by Alamar assay and infiltration studies proved that the bandages have a non-toxic nature at lower concentrations of nZnO whereas slight reduction in viability was seen with increasing nZnO concentrations. The qualitative analysis of ex-vivo re-epithelialization on porcine skin revealed keratinocyte infiltration toward wound area for nZnO alginate bandages.