Extracellular synthesis of silver nanoparticles by a white rot fungus, Phaenerochaete chrysosporium is reported in this paper. Incubation of P. chrysosporium mycelium with silver nitrate solution produced silver nanoparticles in 24h. These silver nanoparticles were characterized by means of UV-vis spectroscopy, X-ray diffraction analysis, scanning electron microscopy, transmission electron microscopy, and photoluminescence spectroscopy. The synthesized silver nanoparticles absorbed maximum at 470 nm in the visible region. XRD spectrum of the silver nanoparticles confirmed the formation of metallic silver. The SEM characterization of the fungus reacted on the Ag+ indicated that the protein might be responsible for the stabilization of silver nanoparticles. This result was further supported by the TEM examination. Though shape variation was noticed, majority of the nanoparticles were found to be of pyramidal shape as seen under TEM. Photoluminescence spectrum showed a broad emission peak of silver nanoparticles at 423 nm when excited at 350 nm. Apart from eco-friendliness, fungus as bio-manufacturing unit will give us an added advantage in ease of handling when compared to other classes of microorganisms.