Application of agricultural by-products in the functional food and beverage industry is currently gaining prominence. Banana (Musa spp) is a popular tropical fruit with global production of 124.97 million tonnes. The banana production industry contributes to large amount of solid waste/ banana by-products, such as, pseudostem and inflorescence. Palayankodan (Musa × paradisiaca Mysore AAB group), Nendran (Musa × paradisiaca AAB group) and Njalipoovan (Musa × paradisiaca AB group) are three popular and common cultivars in Kerala, a state in South India. The present study was aimed to extract the potential bioactive compounds from the pseudostem and inflorescence of the above-mentioned cultivars and to standardise the process of microencapsulation using spray drying. Ultrasonication assisted extraction using ethanol as solvent was carried out. The extract and wall material parameters were standardised for microencapsulation. The encapsulated powders were analysed for encapsulation yield, retention efficiency, physical properties, phytochemical composition, antioxidant potential and anti-diabetic activity. The encapsulation yields and retention efficiencies of the encapsulated powders were found to be approximately 75 and 70.51%, respectively. Results revealed that the powders exhibited lower bulk density, good solubility and reconstitutability. Scanning electron microscopy was also conducted to reveal the particle morphology. All the powders exhibited smooth, spherical shape, with no pores. The phenolic and flavonoid contents of the encapsulated pseudostem and inflorescence extract powders ranged from 2.75 to 3.13 mg GAE/ g of powder and 34.83 to 46.67 mg QE/g of powder, respectively. The present study also reported the in vitro bioactive properties, in terms of antioxidant and anti-diabetic activities of the encapsulated powders. The HPLC analysis of the microencapsulated powders revealed the presence of gallic acid, protocatechuic acid, trans cinnamic acid, trans ferulic acid, epicatechin and syringic acid. It is clear from the study that the encapsulated powders from banana by-products have a great potential to be utilised by the functional food industry.Graphical