The potential of the methanolic extract of the seaweed, Sargassum polycystum in the synthesis of silver nanoparticles was investigated. The extract synthesized appreciable quantities of silver nanoparticles of the size 5- 7 nm, in 24 hrs. The particles were characterized by UV-Vis, FT-IR spectroscopy, HRTEM and XRD analysis. The results indicated that the algal extract can be utilized as an eco-friendly system for the synthesis of silver nanoparticles for various applications in the field of medicine. The methanolic extract of the alga, silver nitrate solution and their combination were tested for their antimicrobial activities against Pseudomonas aeruginosa, Klebsiella pneumoniae, Escherichia coli and Staphylococcus aureus. Anticancer activity of the extract and the silver nanoparticles were evaluated against the breast cancer line MCF-7. Active compounds in the crude extract of the alga were separated and identified as fatty acids by GC-MS analysis. These fatty acids together with the silver nanoparticles exhibited anticancer activity against the breast cancer cell line MCF-7. Results are presented and discussed in detail.