Silver nanoparticles (AgNPs) are promising for their exceptional properties for various applications. This study applied a facile and green method to synthesize AgNPs in an aqueous medium using Averrhoa bilimbi fruit extract as a reducing and stabilizing agent. The formation of AgNPs was confirmed by using UV-visible spectroscopy, X-ray diffraction pattern (XRD), and High-resolution transmission electron microscopy (HRTEM). The synthesized AgNPs consist of face-centered cubic crystals and exhibit homogeneous spherical morphology with an average size of 11 nm. Heavy metals like mercury contamination in water and food pose global health risks, leading to disability issues, even at trace levels. Beside, H₂O₂ is a reactive oxygen species. Thus, elevated H₂O₂ levels can harm cell membranes, proteins, and DNA in aquatic creatures, resulting in oxidative stress that may affect physiological processes. Therefore, there is an urgent need for effective monitoring and prevention. The synthesized AgNPs were utilized as a colorimetric probe for the detection of mercury (Hg²⁺) ions in water at room temperature and found to be highly sensitive and selective with a limit of detection (LOD) of 1.58 μM and a limit of quantification (LOQ) of 5.27 μM. Furthermore, the detection of Hg²⁺ was unaffected in the presence of other pertinent metal ions. The prepared AgNPs probe can also enable detection of Hg²⁺ with the naked eye. In addition, the AgNPs probe was investigated for detecting Hg²⁺ ions in real water samples, which offered satisfying recovery rates ranging from 90.60 ± 2.60 to 96.73 ± 2.83%, confirming the probe's practicability. The capping agent stabilized on the surface of AgNPs can effectively pre-concentrate Hg²⁺ ions through the chemical interaction between AgNPs and Hg²⁺ ions to form Ag–Hg amalgam. This leads to a decrease in the SPR peak from AgNPs. The interaction between Ag and Hg was investigated using synchrotron radiation-induced X-ray photoelectron spectroscopy (SR-XPS). In addition, the AgNPs probe effectively detected hydrogen peroxide (H₂O₂) in an aqueous medium with a LOD of 3.21 μM and LOQ of 10.70 μM. This study aimed to develop a rapid, easy-to-use, eco-friendly, and reliable colorimetric sensor that may quickly identify dangerous pollutants in aqueous samples.