Water-soluble gold nanoparticles (Au NPs) stabilized by a nitrogen-rich PEG-tagged substrate have been prepared by reduction of HAuCl₄ with NaBH₄ in water at room temperature. The morphology and size of the nanoparticles can be controlled by simply varying the gold/stabilizer ratio. The nanoparticles have been fully characterized by TEM, HRTEM, ED, EDS, UV-vis, p-XRD and elemental analysis. The material is efficient as a recyclable catalyst for the selective reduction of nitroarenes with NaBH₄ to yield the corresponding anilines in water at room temperature. Furthermore, the potential ability of the Au NPs as a refractive index sensor due to their localized surface plasmon resonance (LSPR) effect has also been assessed.