It is evident that legume root nodules can accommodate rhizobial and non-rhizobial bacterial endophytes. Our recent nodule microbiome study in peanuts described that small nodules can harbor diverse bacterial endophytes. To understand their functional role, we isolated 87 indigenous endophytes from small nodules of field-grown peanut roots and characterized them at molecular, biochemical, and physiological levels. The amplified 16S rRNA genes and phylogenetic analysis of these isolates revealed a wide variety of microorganisms related to the genera Bacillus, Burkholderia, Enterobacter, Herbaspirillum, Mistsuaria, Pantoea, Pseudomonas, and Rhizobia. It was observed that 37% (100% identity) and 56% (>99% identity) of the isolates matched with the amplified sequence variants (ASVs) from our previous microbiome study. All of these isolates were tested for stress tolerance (high temperature, salinity, acidic pH) and phosphate (P) solubilization along with ammonia (NH3), indole-3-acetic acid (IAA), 1-aminocyclopropane-1-carboxylate deaminase (ACCD), and siderophore production. The majority (78%) of the isolates were found to be halotolerant, thermotolerant, and acidophilic, and a few of them showed a significant positive response to the production of IAA, NH3, siderophore, ACCD, and P-solubilization. To evaluate the plant growth promotion (PGP) activity, plant and nodulation assays were performed in the growth chamber conditions for the selected isolates from both the non-rhizobial and rhizobial groups. However, these isolates appeared to be non-nodulating in the tested conditions. Nonetheless, the isolates 2 (Pantoea), 17 (Burkholderia), 21 (Herbaspirillum), 33o (Pseudomonas), and 77 (Rhizobium sp.) showed significant PGP activity in terms of biomass production. Our findings indicate that these isolates have potential for future biotechnological applications through the development of biologicals for sustainable crop improvement.