The congo red dye, present in textile effluents, is extremely stable towards light, heat, microorganisms and poses serious toxicity issues due to presence of carcinogenic aromatic amines. Magnesium oxide nanoparticles (MgO-NPs) are effective in degrading azo dyes, due to their distinctive physicochemical and catalytic properties, antibacterial effects, and relatively low toxicity. In this study, production of MgO-NPs via a native bacterial isolate Shigella sp. SNT22, their entrapment into Ca-alginate beads, and the determination of their photocatalysis potential for congo red degradation and treating textile wastewater is documented. The UV–VIS spectroscopy confirmed the MgO-NPs by a signature peak at 270 nm. As revealed by FTIR analysis, different functional groups stabilized the MgO-NPs, and the average calculated size of MgO-NPs was 46.89–55.08 nm. The X-ray diffraction pattern revealed the synthesis of pure and crystalline MgO-NPs. The MgO-NPs showed minimal cytotoxic effects to retinal pigment epithelial cell line, maintaining over 90% cell survival even at high concentrations (up to 100 ppm). In an immobilized form with Ca-alginate, the MgO-NPs were able to remove 89.33% CR from aqueous dye solution at 2 mg/mL concentration of nanoparticles after 5h of solar exposure. Moreover, textile effluents treated with MgO-NPs beads reduced pH (24%), electrical conductivity (EC) 38%, total dissolved solids (TDS) 64%, and chemical oxygen demand (COD) 72% in effluents. Overall, the study revealed an ecofriendly and scalable approach of applying MgO-NPs in entrapped form for wastewater treatment to avoid NPs direct environmental release.