AbstractNovel bio‐based, biodegradable packaging material was developed with multi‐functional properties of good mechanical strength, potent biocompatibility, and antifungal attributes, predominantly against fungi vital in food spoilage. Biodegradable polymer composites were prepared with a natural antifungal agent, nystatin (Nyst), by melt processing technique for the first time. Initially, Polycaprolactone (PCL) was melt‐mixed with various percentages of nystatin to produce nystatin‐encapsulated PCL composites (PCL/Nyst). The as‐prepared PCL/Nyst composites were melt‐mixed with polylactic acid (PLA) to produce nystatin PLA/PCL blend composites. Subsequently, the prepared composites were compression molded in the form of films (1 mm) for further characterization. The composite's structural properties were evaluated by SEM, FTIR, mechanical and thermal studies. In addition, the composites were tested in vitro against a panel of pathogenic fungi and for antibiofilm attributes, specifically against three Candida species (C. albicans ATCC10231, C. parapsilosis ATCC22019, and C. glabrata ATCC2001), and foodborne Penicillium sp. All the composites containing 2 to 20 wt% nystatin displayed good activity and sustained nystatin release for up to 4 days. Thus, the overall study demonstrates the potential application of natural antifungal agents in biodegradable polymers to produce novel composite films for antimicrobial packaging without inducing any toxicity, judged from the toxicity assay using nematode Caenorhabditis elegans.