In the present study, a yeast species isolated from CETP, Vellore, Tamilnadu was identified as Cryptococcus sp. VITGBN2 based on molecular techniques and was found to be a potent producer of acidic diacetate sophorolipid in mineral salt media containing vegetable oil as additional carbon source. The chemical structure of the purified biosurfactant was identified as acidic diacetate sophorolipid through GC-MS analysis. This sophorolipid was used as a stabilizer for synthesis of zinc oxide nanoparticles (ZON). The formation of biofunctionalized ZON was characterized using UV-visible spectroscopy, XRD, scanning electron microscopy (SEM) and Fourier transform infrared spectroscopy. The antimicrobial activities of naked ZON and sophorolipid functionalized ZON were tested based on the diameter of inhibition zone in agar well diffusion assay, microbial growth rate determination, protein leakage analysis and lactate dehydrogenase assay. Bacterial pathogen Salmonella enterica and fungal pathogen Candida albicans showed more sensitivity to sophorolipid biofunctionalized ZON compared with naked ZON. Among the two pathogens, S. enterica showed higher sensitivity towards sophorolipid biofunctionalized ZON. SEM analysis showed that cell damage occurred through cell elongation in the case of S. enterica, whereas cell rupture was found to occur predominantly in the case of C. albicans. This is the first report on the dual role of yeastmediated sophorolipid used as a biostabilizer for ZON synthesis as well as a novel functionalizing agent showing antimicrobial property. {\textcopyright} 2014 by The Korean Society for Microbiology and Biotechnology.