Nanoparticles, especially silver nanoparticles (Ag NPs), have gained significant attention in recent years as potential alternatives to traditional antibiotics for treating infectious diseases due to their ability to inhibit the growth of microorganisms effectively. Ag NPs can be synthesized using fungi extract, but the method is not practical for large-scale production due to time and biomass limitations. In this study, we explore the use of chitosan to encapsulate the mycelia of the white-rot fungus Stereum hirsutum and form chitosan fungal beads for use in multiple extractions and nanoparticle synthesis. The resulting nanoparticles were characterized using various techniques, including UV-vis spectrophotometry, transmission electron microscopy, dynamic light scattering, and X-ray diffraction analysis. The analysis revealed that the synthesized nanoparticles were composed of chitosan-silver nanoparticles (CS-Ag NPs) with a size of 25 nm. The chitosan fungal beads were reused in three extractions and nanoparticle synthesis before they lost their ability to produce CS-Ag NPs. The CS-Ag NPs showed potent antimicrobial activity against phytopathogenic and human pathogenic microorganisms, including Pseudomonas syringae, Escherichia coli, Staphylococcus aureus, and Candida albicans, with minimum inhibitory concentrations of 1.5, 1.6, 3.1, and 4 µg/mL, respectively. The antimicrobial activity of CS-Ag NPs was from 2- to 40-fold higher than Ag NPs synthesized using an aqueous extract of unencapsulated fungal biomass. The CS-Ag NPs were most effective at a pH of five regarding the antimicrobial activity. These results suggest that the chitosan fungal beads may be a promising alternative for the sustainable and cost-effective synthesis of CS-Ag NPs with improved antimicrobial activity.