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 Hg and Hg 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 Hg-aided displacement of calixarene moiety from the surface of the functionalized nanoparticles, followed by the formation of Ag-Hg amalgam due to interaction of Hg with Ag and also the formation of assembly of Ag nanoparticles by dipole-dipole interaction of the bare-surfaced nanoparticles. Electrochemical study revealed that with the aid of functionalized nanoparticles, Hg can be detected amperometrically with high sensitivity. The detection limits obtained for Hg 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 Hg in aqueous real sample and Hg in soil sample.