The rising concerns over synthetic colorants have driven demand for natural alternatives, aligning with the global shift toward eco-friendly products. However, the limited availability of natural pigments has spurred research into sustainable sources, particularly microorganisms. Bacteria, in particular, offer great potential for producing bioactive pigments due to their short life cycles, environmental resilience, scalability, and diverse metabolite production. Exploring bacterial pigments presents substantial potential for various industrial applications. This research focuses on the production of bioactive pigments from bacteria isolated from rhizosphere soil, detailing a simplified extraction process and comprehensive characterization, toxicity analysis, and biological applications. Among the isolates, PB01 an orange pigment producer, emerged as the most promising due to its confirmed safety, showing non-pathogenic behavior, antibiotic sensitivity, weak biofilm formation, and no hemolytic activity. A taxonomic analysis based on phenotypic and genotypic investigations revealed the identity of isolate PB01 as Stenotrophomonas rhizophila, exhibiting intracellular pigment production with methanol being the most effective solvent for extraction. UV-Visible and FTIR spectral analysis indicated that the extracted pigment is likely a carotenoid derivative. The pigment demonstrated significant antioxidant, anti-inflammatory, and α-glucosidase inhibitory activities. In addition, the extracted crude pigment did not induce any blood lysis, as confirmed by the hemocompatibility assay, and therefore it was utilized as a coloring agent in agar jelly. The present finding implies that bioactives from S. rhizophila could be employed as natural pigments in the food and pharmaceutical sectors.