Star anise essential oil (SAEO) has garnered significant attention for its potent bioactivities. However, the instability and poor water solubility of SAEO limit its application in the food and pharmaceutical industries. To overcome these challenges and improve bioavailability, we encapsulated SAEO within β-cyclodextrin (β-CD) using a saturated aqueous solution method. Characterization techniques including Fourier transform infrared spectroscopy, Scanning electron microscopy, X-ray diffraction, and Thermogravimetric-differential scanning calorimetry confirmed the successful formation of SAEO and β-CD inclusion complex (SAEO-IC) with good thermal stability. The inclusion complex had a yield of 63.18 ± 3.18% and an oil content of 9.32 ± 0.36%. In vitro digestion studies revealed the stability of SAEO-IC in gastric conditions, with the primary release of active ingredients occurring in the intestine. Moreover, the encapsulation process preserved the antioxidant properties of SAEO and demonstrated enhanced antimicrobial and anti-tumor activity, suggesting that SAEO-IC has the potential to serve as a natural antimicrobial and anticancer agent.