Cellulose is the most abundant plant based biopolymer on earth which provides excellent properties to polymer nanocomposites such as high mechanical properties, high strength, low thermal expansion properties, low density, and biodegradability. The recent demand in materials research is to develop smart materials which comprise excellent features such as enhanced mechanical properties and thermal stability, biodegradability, being eco‐friendly, and low‐cost. Therefore, the objective of this research is to extract cellulose fibers from agricultural waste, i.e., peanut shell as an abundant source of agricultural byproducts and explore the potentiality of polyvinyl alcohol (PVA)/polyvinyl pyrrolidone (PVP)/cellulose blends as an alternative of conventional plastics. The blend which has higher concentration of cellulose shows the higher acid absorption. FT‐IR of PVA/PVP/cellulose confirms the good interaction between the constituents of the blend. Antimicrobial activities of cellulose and their blend with polymer are evaluated and found maximum against Gram negative bacteria (Escherichia coli) than the Gram positive bacteria (Bacillus subtilis). Degradation behavior of blend is found directly proportional to cellulose content, i.e., highest shown by 20% cellulose film. Hence, PVP/PVA/cellulose blends show desired degradable properties and hence can be an alternative for use of conventional plastics.