Halochromic azo dyes have versatile applications, including sensing and anti‐counterfeiting, due to their reversible color‐changing properties. In this work we investigated the structure‐dependent halochromism of azo compound (E)‐4‐((2‐hydroxynaphthalen‐1‐yl)diazenyl)benzenesulfonamide (HDBS) and explore its potential applications using experimental and theoretical approaches. Different spectroscopic techniques confirm the structural change in the dye as a consequence of tautomerism reaction upon changing pH (7 to 13). The stable form of hydrazone is isolated and characterized. Based on the spectroscopic characterization, it is concluded that the azo form exists at pH ≤ 9, whereas the hydrazone form at highly alkaline pH. To understand the origin of the absorption peaks, the stability, and tautomerism in water, DFT and TD‐DFT calculations are performed. A reasonable agreement between the theoretical and experimental observations enabled us to unravel the structure‐dependent halochromism. Further, we have shown that HDBS‐coated paper can be a real‐time visual sensor to monitor fish freshness and for anti‐counterfeiting ink. It changes colors with pH shifts, alerts consumers about the status of food. Additionally, erasable paper strip reduces paper waste and chemical pollution. The findings presented in this work provide a promising avenue for the development of halochromic azo compounds with potential applications in sensing and anti‐counterfeiting.