Radiation-induced mutations have been the most commonly used technique for the development of mutant varieties. The primary aim has been to upgrade the existing plant varieties by varying a few major traits responsible for limiting metabolite productivity. The increasing regulations on protected plant varieties and germplasms have restricted their use. The induced mutants have played a vital role in strengthening the plant breeding program. The medicinal and aromatic plants have been poorly explored for mutation breeding. CSIR-CIMAP has initiated a mutation breeding program on some of the high-value plants, like Matricaria. As a result, we could develop gamma-rays-induced stable accessions. Genus Matricaria is well known for the biosynthesis of diverse bioactive plant secondary metabolites as well as for its traditional and healthcare benefits documented in Ph. Eur. In the present work, gamma-irradiated stable accessions of German chamomile, Matricaria recutita L., have been investigated for their essential oil composition and biological assessment. After a thorough investigation for a two-year cropping period, we have observed that some accessions contain the highest α-bisabolol oxide B proportions (24.3–55.3%), while quite a few showed chamazulene (2.9–5.8%), α-bisabolone oxide A (6.5–38%), and α-bisabolol oxide A (30.1–55.3%). A few accessions were marked by the presence of lavandulol, an irregular monoterpenoid of high fragrance value. The antibacterial, anti-inflammatory, and acetylcholinesterase (AChE) inhibitory properties of these gamma-irradiated accessions were also evaluated. The accessions G6-R5-5 and G2-R1-6 exhibited maximum inhibition against S. aureus whereas G2-R1-1 arrested the growth of C. albicans. Furthermore, G2R1-3 composition is responsible for reducing AChE and inflammation in cell lines. These results may open up ways to develop plant-derived consumer products from Matricaria recutita L.