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Silver nanoparticles (Ag-np) are being used increasingly in wound dressings, catheters, and various household products due to their antimicrobial activity. The toxicity of starch-coated silver nanoparticles was studied using normal human lung fibroblast cells (IMR-90) and human glioblastoma cells (U251). The toxicity was evaluated using changes in cell morphology, cell viability, metabolic activity, and oxidative stress. Ag-np reduced ATP content of the cell caused damage to mitochondria and increased production of reactive oxygen species (ROS) in a dose-dependent manner. DNA damage, as measured by single cell gel electrophoresis (SCGE) and cytokinesis blocked micronucleus assay (CBMN), was also dose-dependent and more prominent in the cancer cells. The nanoparticle treatment caused cell cycle arrest in G2/M phase possibly due to repair of damaged DNA. Annexin-V propidium iodide (PI) staining showed no massive apoptosis or necrosis. The transmission electron microscopic (TEM) analysis indicated the presence of Ag-np inside the mitochondria and nucleus, implicating their direct involvement in the mitochondrial toxicity and DNA damage. A possible mechanism of toxicity is proposed which involves disruption of the mitochondrial respiratory chain by Ag-np leading to production of ROS and interruption of ATP synthesis, which in turn cause DNA damage. It is anticipated that DNA damage is augmented by deposition, followed by interactions of Ag-np to the DNA leading to cell cycle arrest in the G2/M phase. The higher sensitivity of U251 cells and their arrest in G2/M phase could be explored further for evaluating the potential use of Ag-np in cancer therapy.