In the present report, a sensitive and selective sensor has been developed for the detection of Ni2+ using optical properties of gold nanoparticles. Gold nanoparticles used for the sensing has been synthesized using Nocardiopsis dassonvillei NCIM 5124. Synthesized gold nanoparticles were found to be aggregated in presence of Ni2+ ions with concomitant change in the surface plasmon resonance (SPR) peak intensity of gold nanoparticles. This Ni2+ induced change in the optical properties of gold nanoparticles has been explored for the fabrication of fiber optic sensor for the detection of Ni2+. The selectivity of the sensor towards Ni2+ was tested by measuring the sensing response of the sensor towards various metal ions such as, Zn2+, Cd2+, Cr3+, Mo2+, Cu2+, Pd2+, Hg2+ and Ni2+at 100 ppm concentrations. The developed sensor showed linear response in the range of 2–10 ppm (R2 = 0.98). Detection limit of the sensor was found to be 2 ppm.