We presented a novel synthesis of Tellurium doped CeO2 nano wools, with high yield via thermo-mechanical route. The obtained nanomaterial has cubic fluorite structure demonstrated from the XRD pattern. SEM revealed the unique nano wool like morphology formed from nanofibers having mean diameter of 200 nm. X-ray photoelectron spectroscopy (XPS) demonstrated binding energy at 576 eV and 586 eV, confirming the oxidation of Tellurium to TeO2 in the doped CeO2 NCs. The anti-bacterial activity of this material was studied against gram -ve Klebsiella pneumoniae MTCC 3384 and gram + ve Bacillus subtilis MTCC 441 bacteria. TeO2–CeO2 nano wools were found to be more effective than, cefotaxime (CTX) when the antibacterial potential was evaluated with this third-generic antibiotic, using the disc diffusion method. Synergistic effect was confirmed from the optimized formulation of TeO2–CeO2 and Cefotaxime, which showed further enhancement in the antibacterial activity against both the strains. Antibiofilm studies were done using Congo Agar Red Assay (CRA) against opportunistic Klebsiella pneumoniae to understand the inhibition efficiency of the material. The small particle size, positive surface charge on nano wools, and increased ROS production physically rupture the bacterial cell membrane and induce bacterial cell death. PL spectra revealed low ROS recombination rate in the nanocomposites. The cytotoxicity studies on human embryonic kidney (HEK 293) cell lines proved negligible toxicity at IC50 value of 0.27 mg/mL (corresponding to Klebsiella pneumoniae and Bacillus subtilis) for 5 wt% Te–CeO2 NCs. Hence, this material can be used as a chemotherapeutic agent in targeted nasal delivery against lung infections as well as wound healing applications.