Nanoformulation based drug delivery is one of the most important research areas in the field of nanomedicine, which provides promising alternatives to the limitations of conventional chemotherapy. Nano drug delivery enables improved pharmacokinetic profile, bioavailability and therapeutic efficiency compared to the regular chemotherapeutic drugs. Herein, we have established a simple method for the synthesis of docetaxel (Dtx) encapsulated poly (ethylene glycol) (PEG) functionalized gold nanoparticles (AuNPs) for targeted drug delivery to prostate cancer. AuNPs were synthesized by the citrate ion reduction method followed by functionalization with thiol-PEG-amine (SH-PEG-NH). SH-PEG-NH functionalized AuNPs were conjugated with the targeting vehicle, folic acid (FA). The anticancer drug, Dtx was encapsulated within AuNPs by the non-covalent linkage method. The physicochemical characteristics of the synthesized nanoformulations were extensively characterized by various spectral and microscopic studies. HR-TEM indicates the average size of the AuNPs is 16 nm and the nanoformulations is 18 nm. The encapsulation efficiency of the Dtx is ~ 96% which is confirmed by the elemental mapping analysis. The in vitro drug release profile of Dtx and AuNPs nanoformulations were studied by the dialysis membrane method. The anticancer activity of docetaxel encapsulated AuNPs were evaluated with prostate cancer cell lines (PC3). The drug encapsulated nanoformulations reduced the cell viability to about 40% (40 µM concentration at 24, 48 and 72 h of treatment). The optical microscopy observation reveals that the damage of prostate cancer cells after exposure to Dtx encapsulated AuNPs. The good cytotoxic activity of the present nanoformulation against prostate cancer cell lines enables its application for targeted drug delivery to prostate cancer.