Water contamination by several aquatic pollutants such as dyes, heavy metal ions and microbes is a prevalent concern to health and environment. Thus, developing facile, economical, and eco-friendly strategies to tackle this problem have become paramount. Hence, this study reports the synthesis of hydroxyethylcellulose phthalate-capped silver nanoparticles (HEC-PA@AgNPs) using a simple sunlight-assisted route. The multifunctional applications of the synthesized particles as an efficient nanoprobe for the selective sensing of Hg2+ as well as their photocatalytic and antimicrobial activities were demonstrated. HEC-PA@AgNPs were systematically characterized by various advanced analytical techniques such as FTIR, UV–Vis spectroscopy, X-ray diffraction (XRD), zeta potential (ZP) and dynamic light scattering (DLS). The successful functionalization of AgNPs with HEC-PA was manifested using FTIR. SEM and XRD revealed the formation of spherical AgNPs with a face centered cubic structure and a crystallite size of 14 nm. The particles demonstrated a hydrodynamic size of 40 nm with a good colloidal stability as evidenced from the ZP value of −35 mV, suggesting the effective role of the negatively charged HEC-PA capping agent in stabilizing the NPs. HEC-PA@AgNPs exhibited fast naked-eye colorimetric detection, high selectivity, and sensitivity to Hg2+ in spiked real water samples over a wide range of pH (3–9) and temperatures (298–328 K), achieving a detection limit of 119 nM. The presence of other diverse metal ions didn't affect the specificity of the particles toward Hg ions. Further, the sensing mechanism is based on a characteristic redox reaction between Hg2+ and AgNPs. Further, HEC-PA@AgNPs showcased a more noxious antimicrobial activity to gram-positive bacteria (B. subtilis and S. aureus) than gram-negative bacteria (E. coli). Besides, AgNPs exhibited high photocatalytic potential under sunlight irradiation with a degradation efficiency of 79 % for methylene blue dye in only 80 min following pseudo-1st order kinetics with a rate constant of 0.019 min−1. The photocatalyst exhibited good reusability after five recycling runs. These results render our approach promising multifunctional analytical probe for environmental and biomedical applications.