Cashew nut testa (CNT) is an underutilized cashew by-product rich in polyphenols. The applications of CNT are limited due to its astringency, less solubility, and instability of polyphenols during the processing. Nanoencapsulation was used to overcome these limitations. β-cyclodextrin alone and in combination with whey protein isolate (WPI) was used for nano-complex preparation. The WPI/CD-CNT nano-complex powder showed higher encapsulation efficiency (86.9%) and yield (70.5–80%) compared to CD-CNT powder. Both the spray-dried powders showed improved thermal stability, higher solubility (97%), less moisture content, and increased DPPH and ABTS radical scavenging activities indicating potential food and agricultural applications. In addition, the nano-complex powders showed a controlled release of core bio-actives under gastric and intestinal pH compared to the non-encapsulated CNT phenolic extract. Degradation kinetics studies of the CNT extract after thermal and light treatments were also discussed. Both the nano-complexes showed high stability under light and thermal treatment. The results suggest that valorization of CNT can be done through nano-complex preparation and WPI and β-CD are efficient carrier materials for the encapsulation of polyphenols with potential applications in food and agriculture.