Reduced toxicity and ease of modification make gold nanoparticles (GNPs) suitable for targeted delivery, bioimaging and theranostics by conjugating cell-penetrating peptides (CPPs). This study presents the biodistribution and enhanced intracellular uptake of GNPs functionalized with VG-21, a CPP derived from vesicular stomatitis virus glycoprotein (G). Cell penetrating efficiency of VG-21 was demonstrated using CellPPD web server, conjugated to GNPs and were characterized using, UV-visible and FTIR spectroscopy, transmission electron microscopy, dynamic light scattering and zeta potential. Uptake of VG-21 functionalized GNPs (fGNPs) was tested in eukaryotic cell lines, HEp-2, HeLa, Vero and Cos-7, using flow cytometry, fluorescence and transmission electron microscopy (TEM), and inductively coupled plasmon optical emission spectroscopy (ICP-OES). The effects of nanoparticles on stress and toxicity related genes were studied in HEp-2 cells. Cytokine response to fGNPs was studied in vitro and in vivo. Biodistribution of nanoparticles was studied in BALB/c mice using TEM and ICP-OES. VG-21, GNPs and fGNPs had little to no effect on cell viability. Upon exposure to fGNPs, HEp-2 cells revealed minimal down regulation of stress response genes. fGNPs displayed higher uptake than GNPs in all cell lines with highest internalization by HEp-2, HeLa and Cos-7 cells, in endocytotic vesicles and nuclei. Cytokine ELISA showed that mouse J774 cells exposed to fGNPs produced less IL-6 than did GNP-treated macrophage cells, whereas TNF-α levels were low in both treatment groups. Biodistribution studies in BALB/c mice revealed higher accumulation of fGNPs than GNPs in the liver and spleen. Histopathological analyses showed that fGNP-treated mice accumulated 35 ng/mg tissue and 20 ng/mg tissue gold in spleen and liver respectively, without any adverse effects. Likewise, serum cytokines were low in both GNP- and fGNP-treated mice. Thus, VG-21-conjugated GNPs have enhanced cellular internalization and are suitable for various biomedical applications as nano-conjugates.