Rising concern about emerging and already persisting pollutants in water has urged the scientific community to develop novel remedial techniques. A new group of remediation methods is based on the modification of nanoscale zero-valent iron particles (nZVI), which are well known for treating volatile organic compounds and heavy metals. The properties of nZVI may be further enhanced by modifying their structure or surface using “green” polymers. Herein, nZVI was modified by a β-cyclodextrin polymer (β-CDP), which is considered an environmentally safe and inexpensive adsorbent of contaminants. This composite was used for the first time for the degradation of sulfamethoxazole (SMX). Coating by β-CDP not only enhanced the degradation of SMX (>95%, under 10 min) by the nanoparticles in a wide pH range (3–9) and enabled their efficient reusability (for three cycles) but also made the coated nZVI less toxic to the model bioindicator microalga Raphidocelis subcapitata. Moreover, degradation products of SMX were found to be less toxic to Escherichia coli bacteria and R. subcapitata microalga, contrary to the SMX antibiotic itself, indicating a simple and eco-friendly cleaning process. This research aims to further stimulate and develop novel remedial techniques based on nZVI, and provides a potential application in the degradation of antibiotics in a wide pH range. Moreover, the wealth of available cyclodextrin materials used for surface modification may open a way to discover more efficient and attractive composites for environmental applications.