The recovery of rare earth elements (REEs) from acidic wastewater is crucial to sustainable development, industrial processes, and human health. In this research, β‐cyclodextrin‐based nanosponges (β‐CD/PVA‐SA NSs) have been proposed as potential adsorbents for europium (Eu), dysprosium (Dy), and gadolinium (Gd) recovery. The nanosponges are synthesized by cross‐linking β‐cyclodextrin (β‐CD) functionalized polyvinyl alcohol (PVA) and sodium alginate (SA). Experimental results indicate that β‐CD/PVA‐SA NSs exhibit favorable selectivity for Eu, Dy, and Gd, with the maximum adsorption capacity of 222, 217, and 204 mg/g, respectively, in addition to stability and cyclicity. β‐CD/PVA‐SA NSs maintain selective adsorption effects towards RE ions that are present in acidic mine drainage (AMD), thereby highlighting their potential for practical applications. Furthermore, density functional theory (DFT) simulations have unveiled the fundamental interactions between the functional groups anchored in β‐CD/PVA‐SA NSs and the REEs, providing vital insights into their adsorption mechanism. Hence, the utilization of β‐CD/PVA‐SA NSs has the potential to advance initiatives in remediating acidic water pollution and facilitating the sustainable recycling of RE resources.