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Prodigiosin (PG) is a bioactive compound produced by several bacterial species. Currently, many technologies are being developed for the production of PG by fermentation processes. However, new challenges are being faced with regard to the production of PG in terms of the recovery and purification steps, owing to the labile nature of PG molecules and the cost of the purification steps. Conventional methods have limitations due to high cost, low reusability, and health hazards. Hence, the present investigation was focused on the development of surface-functionalized magnetic iron oxide ([Fe3O4]F) for solvent-free extraction of bioactive PG from the bacterial fermented medium. Fe3O4 was functionalized with diethanolamine and characterized by FT-IR, diffuse reflectance spectroscopy, thermogravimetric analysis, scanning electron microscopy, and confocal microscopy. The various process parameters, such as contact time, temperature, pH, and mass of Fe3O4, were optimized for the extraction of PG using functionalized Fe3O4. Instrumental analyses confirmed that the PG molecules were cross-linked with functional groups on [Fe3O4]F through van der Waals forces of attraction. PG extracted through Fe3O4 or [Fe3O4]F was separated from the fermentation medium by applying an external electromagnetic field and regenerated for successive reuse cycles. The purity of the extracted PG was characterized by high-performance liquid chromatography, FT-IR, and UV-visible spectroscopy. The iron oxide-diethanolamine-PG cross-linked ([Fe3O4]F-PG) composite matrix effectively deactivates harmful fouling by cyanobacterial growth in water-treatment plants. The present investigation provides the possibility of solvent-free extraction of bacterial bioactive PG from a fermented medium using functionalized magnetic iron oxide.