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This study aimed to biosynthesize zinc oxide nanoparticles (ZnO NPs) using Pleurotus ostreatus to achieve a simple ecofriendly method, and further evaluate antimicrobial activity and cytotoxicity towards HepG2 and Hek293 cells. The nanoparticles were characterized through UV-Vis spectroscopy, Fourier transform infrared spectroscopy (FTIR), transmission and scanning electron microscopy (TEM and SEM), selected area electron diffraction (SAED), X-ray diffraction (XRD), and dynamic light scattering (DLS). The minimal inhibitory concentration (MIC) for antimicrobial activity and MTT assay for cytotoxicity were conducted in vitro. The study revealed an efficient, simple, and ecofriendly method for synthesis of ZnO NPs that have antimicrobial activity. UV-Vis showed peaks at 340 and 400 nm, and the bioactive compounds found in the mushroom acted as capping, reducing, and stabilizing agents. TEM characterized NPs as an amorphous nanosheet, with preferential orientation as projected by SAED patterns. The spherical and agglomerated morphology was observed on SEM, with EDX proving the presence of Zn and O, while XRD indicated a crystallite size of 7.50 nm and a stable nature (zeta potential of −23.3 mV). High cytotoxicity on Hek293 and HepG2 cells was noted for ZnO NPs. The study provides an alternative, ecofriendly method for biosynthesis of ZnO NPs that have antibacterial activity and potential use in cancer treatment.