The current research article presents development, characterization, stability, antimicrobial activity, antispasmodic activity and antidiarrheal activity of silver nanoparticles synthesized and stabilized by polymeric coating of gum tragacanth solution. The nanoparticles were developed by a chemical reduction of silver nitrate. The reducing sugars and polysaccharides-based natural polymers such as gum acacia, gum tragacanth, alginates and cellulose derivatives were investigated as both reducing agents and stabilizers of silver nanoparticles. Influence of the molar concentration of silver nitrate, type and concentration of reducing agent on the formation and stability of silver nanoparticles have been investigated in detail. The stability or aggregation behavior of silver nanoparticles when diluted with simulated gastric fluid, simulated intestinal fluid and phosphate buffer saline were investigated to understand the influence of biological fluids on the stability of silver nanoparticles. SNPs in basic buffers were found to be more stable compared to those in acidic buffers. Silver nanoparticles were characterized by UV absorption spectrometry, particle size and zeta potential analyzer, FTIR spectroscopy, differential scanning calorimetry, X-ray diffraction and atomic force microscopy. SNPs were found spherical within 2.5–4 nm as per atomic force microscopic studies. The silver nanoparticles developed from gum tragacanth were better and more stable than those produced by gum acacia. The smaller particle size, low polydispersity index and high zeta potential resulted in silver nanosuspensions stable over a period of six months. The silver nanoparticles were found to exhibit significant antimicrobial, antispasmodic and antidiarrheal activities.