The emergence of antibiotic resistance has had a severe impact on human health and economic burdens, drawing attention to the development of novel antimicrobial therapies. Polymer-metal composites have shown evidence of therapeutic applications by exerting antimicrobial effects and delivering these antimicrobials with biocompatibility. Therefore, this study prepared and characterized chitosan (CS)-fabricated tellurium nanoparticles (Te NPs) for enhanced antimicrobial, antioxidant, and cytotoxicity applications. The CS-Te NPs were spherical, polydisperse, and distributed within the CS matrix with an average size of 37.48 ± 14.56 nm, as confirmed by TEM analysis. CS-Te NPs exhibited positive zeta potential in neutral (pH 7.0: 7.90 ± 1.86 mV) and acidic environment. XRD analysis confirmed the crystalline nature of CS-Te NPs, and these nanoparticles exhibited good thermal and less porosity. A higher release of Te ions occurred from CS-Te NPs at an acidic pH. Further, CS-Te NPs displayed stronger antibacterial and antibiofilm activity against E. coli and S. enterica. Furthermore, CS-Te NPs exhibited significant free radical scavenging activity against ABTS and DPPH free radicals. Moreover, these nanoparticles demonstrated cytotoxicity against cancerous cells (A549 and PC3 cells) when compared to normal cells (NIH3T3 cells). Therefore, this study suggests that CS-Te NPs could serve as a substantial therapeutic agent.