This study reports the green synthesis of carbon dots (CDs) from Calotropis gigantea leaves and their subsequent application in fabricating silver–iron (Ag–Fe) nanocomposites (NCs). CDs, generated via hydrothermal treatment, functioned as both reductive mediators and stabilizing agents. Structural analyses confirmed the amorphous nature of CDs and the crystalline architecture of NCs, with abundant surface functionalities (–OH, –COOH, –C = O) imparting colloidal stability and reactivity. Optical investigations revealed distinct photoluminescence of CDs and band-gap narrowing in NCs, signifying enhanced electronic interactions. Morphological evaluation indicated monodisperse CDs (~ 4.2 nm) and slightly larger NCs (~ 8.77 nm) with heterogeneous distributions. Biological assessments demonstrated superior antioxidant capacity of CDs in DPPH, FRAP, and ABTS assays, while NCs exhibited greater anti-inflammatory efficacy through albumin denaturation, RBC hemolysis, and proteinase inhibition. Cytotoxicity against MCF-7 breast cancer cells revealed a lower IC₅₀ for NCs (72.5 µg mL⁻¹), underscoring their higher therapeutic potential. Antimicrobial profiling further highlighted the synergistic bactericidal and fungicidal activity of NCs, derived from the combined bioactivity of silver and iron. These findings establish CDs and NCs as multifunctional nano-architectures with significant promise for theranostic applications, thereby advancing the scope of biomedical nanotechnology.