AbstractA novel biocompatible carbon nanoparticles, i. e., carbon dots (CDs) are prepared from cheap organic precursors and are used to synthesize gold nanoparticles (AuNPs). The formation of CDs are confirmed from their absorption and emission properties. The CDs not only acts as reducing agent but also stabilizes the resulting AuNPs. The high stabilizing effect of CDs can be attributed to their hydrophilic surfaces due to the presence of ‐C=O, ‐OH, etc. functional group as confirmed from FTIR spectral analysis. Basically, two types of AuNPs are observed, one is decahedron type particles and the other one is triangular plates. The size of decahedron type AuNPs are measured to be ∼ 30 nm, whereas those of triangular plates are ∼ 100 nm. These mixture of AuNPs are used to study a model catalytic reaction, i. e., reduction of 4‐nitrophenol by NaBH4 in which the reaction is completed in 5 Mins and the reaction follows the first order kinetics with a first order rate constant of 1.28 min−1. Moreover, the resulting AuNPs can be reused for further reactions and up to 4 cycles it has been observed that the efficiency of conversion remains ∼100% with this AuNPs catalyst. Thus, functional CDs not only catalyse the formation of AuNPs, but also give them enough stability for catalytic applications in many organic transformation reactions.