This research presents an innovative strategy for the design and synthesis of a cross-linked hydrogel polymer matrix based on lignin-chitosan biopolymers (Lig-CS), which is utilized to encapsulate silver nanoparticles, forming a distinctive bio-nanocomposite. The hydrogel structure of Lig-CS was developed through hydrogen bonding and further cross-linked with glutaraldehyde, creating a natural framework that acts as a stabilizing, reducing, and stabilizing agent for the incorporation of silver nanoparticles (Lig-CS/Ag NPs) under ultrasonic irradiation. Various advanced techniques, including UV–vis, FE-SEM, TEM, EDX, FT-IR, ICP-OES, TGA, and XRD confirmed the well synthesis of the Lig-CS/Ag NPs composite. TEM analysis indicated that the silver nanoparticles were spherical, uniformly distributed, and approximately 10–15 nm in size. Additionally, the catalytic efficiency of Lig-CS/Ag NPs was assessed in reducing nitroarenes to produce aniline derivatives. The nanocatalyst demonstrated excellent recyclability, retaining its activity after more than nine cycles with only a slight decrease in efficiency. In addition, the Lig-CS/Ag NPs nanocomposite was engaged in biological assays like study of antioxidant properties by DPPH mediated free radical scavenging test and treating the diarrhea in rats. These Lig-CS/Ag NPs nanocomposite exhibited a decrease in the inflammatory cells infiltration in both the colon and ileum. Moreover, they resulted in lower concentrations of TNF-α, IL-17A, IL-6, and IL-1β, while simultaneously increasing the levels of IL-10 and IL-4 in the colon tissues. Additionally, the nanoparticles promoted the propionate and acetate production, modulated the composition and diversity of gut microbiota, enhanced the relative abundance of Bacteroides and Lactobacillus, and reduced the Coprococcus and Blautia relative abundance. The data reported that Lig-CS/Ag NPs nanocomposite may significantly improve the restoration of intestinal architecture in rats, reduce the levels of inflammatory cytokines, increase concentrations of SCFAs, aid in the recovery of intestinal mucosal barrier and the gut microbiota, and alleviate antibiotic-associated negative efficacies, including diarrhea and microbiota dysbiosis. Our investigation revealed that Lig-CS/Ag NPs nanocomposite has the potential to protect the intestinal barrier by enhancing the Claudin-1 and Occludin expression. Additionally, these nanoparticles were observed to suppress the MAPK inflammatory signaling pathway, which contributes to the amelioration of inflammatory conditions. Upon the conclusion of clinical trial studies, these nanoparticles could represent a new remedial approach for the diarrhea treatment in humans.