Room-temperature extracellular biosynthesis of gold nanoparticles (Au NPs) was achieved usingEscherichia coliK12 cells without the addition of growth media, pH adjustments or inclusion of electron donors/stabilizing agents. The resulting nanoparticles were analysed by ultraviolet–visible (UV–vis) spectrophotometry, atomic force microscopy, transmission electron microscopy and X-ray diffraction. Highly dispersed gold nanoplates were achieved in the order of around 50 nm. Further, the underlying mechanism was found to be controlled by certain extracellular membrane-bound proteins, which was confirmed by Fourier transformation-infrared spectroscopy and sodium dodecyl sulfate polyacrylamide gel electrophoresis. We observed that certain membrane-bound peptides are responsible for reduction and subsequent stabilization of Au NPs (confirmed by zeta potential analysis). Upon de-activation of these proteins, no nanoparticle formation was observed. Also, we prepared a novel biocatalyst with Au NPs attached to the membrane-bound fraction ofE. coliK12 cells serving as an efficient heterogeneous catalyst in complete reduction of 4-nitrophenol in the presence of NaBH₄which was studied with UV–vis spectroscopy. This is the first report on bacterial membrane-Au NP nanobiocomposite serving as an efficient heterogeneous catalyst in complete reduction of nitroaromatic pollutant in water.