In this study, polymer (polyethylene glycol [PEG] and Chitosan)‐coated silver oxide nanoparticles (NPs) have been prepared by hydrothermal method. The polymer‐encapsulated NPs are characterized by materials‐related characterization techniques such as X‐Ray diffraction (XRD), scanning electron microscope (SEM), Ultraviolet–visible (UV–Vis), photoluminescence (PL), and Fourier‐transform infrared (FTIR) spectroscopy. The crystallite size of silver oxide NPs is 43.39 nm and reduces to 34.56 nm and 30.43 nm for PEG and Chitosan functionalized NPs, respectively. SEM micrographs show the spherical morphology of the synthesized nanomaterials with the grain size of pristine, PEG, and Chitosan functionalized silver oxide NPs as 60.9 ± 14.1, 70.9 ± 10.3, and 57.2 ± 7.8 nm, respectively. The band gap of silver oxide NPs increases upon polymer functionalization. PEGlyation of silver oxide NPs has enhanced its anticancer potential significantly against liver cancer cell line (HuH‐7), shows least cell viability, and IC50 value is as low as 0.106 μg/mL and in the case of Chitosan coating 4.505 μg/mL. The antibacterial properties and biofilm inhibition are investigated against bacterial extracts of Escherichia coli and Staphylococcus aureus. The polymer‐coated silver oxide NPs have shown enhanced antibacterial potential against both S. aureus and E. coli. CAM assay is used to evaluate the wound‐healing ability of nanomaterials. Alginate gels incorporated with NPs have promoted wound healing. Our results revealed that the surface modification by PEG and Chitosan improved the therapeutic potential of silver oxide NPs.