Carbon dots (CDs) with 48% quantum yield (QY) were synthesized by simple hydrothermal treatment using Pseudo-stem of banana plant as carbon source. As synthesized CDs were characterized using UV–vis, fluorescence, dynamic light scattering (DLS), Fourier transform infrared (FT-IR), Raman, X-ray photoelectron spectroscopy (XPS) and High resolution transmission electron microscopic (HRTEM) techniques. A fluorescent nanosensor which exhibits highly specific recognition capability towards Fe3+ over other competing metal ions has been reported. CD exhibits fluorescent “turn-off” sensing nature with high selectivity towards Fe3+ with a detection limit as low as 6.4 nM and “turn-on” property towards S2O32− anion. The biocompatibility of CDs was revealed from the cytotoxicity studies on cancerous cells (HeLa, MCF-7 (Michigan Cancer Foundation-7)) and was employed as fluorescent probes for multi-coloured (blue, green and red) imaging of HeLa and MCF-7 cells. Due to the bright fluorescence, water solubility, high photo-stability, low toxicity, cell-membrane permeability and good biocompatibility, as-prepared carbon nanodots are demonstrated to be excellent probe as bio-imaging agent. © 2017 Elsevier B.V.