Nanotechnology is an evolving interdisciplinary field of research interspersing material science and nanobiotechnology. Nanoparticles are studied extensively for their specific catalytic, magnetic, electronic, optical, antimicrobial, theranostic, diagnosis, wound healing, and anti-inflammatory properties. ZnO nanoparticles (NPs) have many applications owing to their unique characteristics, which include low cost, nontoxicity, abundance in nature, and the ability to prepare compounds with varying morphologies having different properties. The main aim of the study is to biosynthesis of ZnO nanoparticles coated with silver from the aqueous extract of Ganoderma lucidum (Curtis) P. Karst and to evaluate its antidiabetic potential by performing alpha-glucosidase inhibition and alpha-amylase inhibition assays and to evaluate the anticancer potential by cytotoxicity (MTT) assay against human breast cancer MDA-MB 231 cell lines. The biosynthesis of ZnO nanoparticles coated with Ag was characterized by UV–vis spectroscopy, Fourier transform infrared spectroscopy, energy dispersive X-ray analysis, scanning electron microscope, and transmission electron microscopy. An increasing concentration in the biosynthesized ZnO nanoparticles coated with Ag produces strong antidiabetic activity through enzyme inhibition effect and anticancer activity through the reduction of cell viability. The present study recommended that the “Biological” method of biological nanoparticle production is a promising approach that allows synthesis in aqueous conditions, with low energy requirements and low costs. In the future, the mycosynthesized nanoparticles might be used in the medical arena to treat and prevent diseases.