This work describes cell associated and extracellular synthesis of nanoparticles by the yeast, Williopsis saturnus. The yeast was able to grow in the absence and presence of sodium chloride (NaCl) and form nanoparticles in a cell associated manner. The content of melanin, a stress-associated pigment was found to be progressively greater in the presence of increasing concentrations of NaCl. With higher quantities of melanin (extracted from yeast cells grown in the presence of 4% of NaCl), smaller sized nanoparticles were obtained. This is the first report on understanding the relationship between halotolerance, production of a stress-related pigment (melanin) and synthesis of nanoparticles with antioxidant properties by using W. saturnus as a model system. The cell free extracts derived from cultures grown in the absence of NaCl were able to mediate extracellular synthesis of gold and silver nanoparticles and the biomolecule mediating nanoparticle synthesis was identified to be a glycolipid. Extracellularly synthesized gold nanoparticles displayed good catalytic activity and rapidly mediated the reduction of 4-nitrophenol to 4-aminophenol.