Calixarene-functionalized water dispersible silver nanoparticles have been synthesized and characterized on the basis of UV-vis, IR, X-ray diffraction, and high-resolution transmission electron microscopy analysis, and their sensing properties toward metal ions have been investigated. They selectively detect Hg2+ and Hg0 in solution and vapor phases, respectively, with distinct color change. Interference study with mixture of metal ions revealed no interference from any other metal ions used in this study. Their mechanism of detection involved Hg2+-aided displacement of calixarene moiety from the surface of the functionalized nanoparticles, followed by the formation of Ag-Hg amalgam due to interaction of Hg2+ with Ag0 and also the formation of assembly of Ag0 nanoparticles by dipole-dipole interaction of the bare-surfaced nanoparticles. Electrochemical study revealed that with the aid of functionalized nanoparticles, Hg2+ can be detected amperometrically with high sensitivity. The detection limits obtained for Hg2+ by UV-vis study and amperometry are 0.5 nM (0.1 ppb) and 10 nM (2 ppb), respectively. The new material has been used to detect Hg2+ in aqueous real sample and Hg0 in soil sample.