This review paper presents the overview of processes involved in transformation of organic-coated silver nanoparticles (AgNPs) in biological systems and in the aquatic environment. The coating on AgNPs greatly influences the fate, stability, and toxicity of AgNPs in aqueous solutions, biological systems, and the environment. Several organic-coated AgNP systems are discussed to understand their stability and toxicity in biological media and natural water. Examples are presented to demonstrate how a transformation of organic-coated AgNPs in an aqueous solution is affected by the type of coating, pH, kind of electrolyte (mono- or divalent), ionic strength, organic ligands (inorganic and organic), organic matter (fulvic and humic acids), redox conditions (oxic and anoxic), and light. Results of cytotoxicity, genotoxicity, and ecotoxicity of coated AgNPs to food chain members (plants, bacteria, and aquatic and terrestrial organisms) are reviewed. Key factors contributing to toxicity are the size, shape, surface coating, surface charge, and conditions of silver ion release. AgNPs may directly damage the cell membranes, disrupt ATP production and DNA replication, alternate gene expressions, release toxic Ag(+) ion, and produce reactive oxygen species to oxidize biological components of the cell. A progress made on understanding the mechanism of organic-coated AgNP toxicity using different analytical techniques is presented.