We present a plausible mechanism of formation, encapsulation, and stabilization of gold nanoparticles (GNPs) in presence of poly(vinyl pyrrolidone) (PVP) in 1-butanol in support of UV-visible, Raman, Fourier transform infrared spectroscopy (FTIR), zetapotential, X-ray photoelectron spectrum (XPS), and transmission electron microscopy. A surface plasmon resonance band at 533 nm in the UV-visible spectrum reveals formation of *20 nm spherical GNPs in the non-hydrocolloid. In the FTIR spectrum, selective enhancement in the intensity of C-H stretching and red-shift in the C=O band suggests that PVP encapsulate GNP by an interaction between PVP and GNP that occurs via O-atom of pyrrolidone ring. Raman and XPS spectrum well supports the findings of FTIR spectrum. Zeta potential of -15.22 mV at 7.5 pH found in PVP-capped GNP strongly recommends the role of electrosteric effect towards the observed colloidal stability. Microscopic image demonstrates a thin coating of amorphous PVP layer around GNPs in a core-shell structure. Probing the mechanism of formation, encapsulation, and stabilization of GNP could provide essential information for development of bimetallic NPs for catalytic applications.