In the current study, a simple and environmentally friendly hydrothermal treatment of fungal biomass for the preparation of carbon nanodots (CND) has been reported. The optical and structural characteristics of the CND have been thoroughly investigated using X‐ray Diffraction (XRD), Transmission Electron Microscopy (TEM), UV‐Visible, and fluorescence spectroscopy methods. Elemental analyses and Fourier Transform Infrared spectroscopy (FTIR) have been used to highlight the surface functionality and composition of the CND.CND have been employed as a fluorescence probe for sensitive and selective detection of rhodamine B (Rh−B) and malachite green (MG) because the presence of food adulterants quenches the fluorescence of the CND. Finally, human embryonic kidney 293 (HEK 293) cell lines have been used to assess the biocompatibility and bio‐imaging features of CND. Fluorescence microscopy has been used for qualitative examination of the cellular uptake of CND, while the MTT test has been used for quantitative analysis of the cell‐type‐dependent uptake of CND. The article further investigates the sensing of food adulterants. Therefore, we have validated the practicality of CND obtained from the new carbon source for versatile applications.