In the present work sodium alginate functionalized halloysite nanotubes (HNTs) reinforced poly (vinyl alcohol) nanocomposite films were prepared by solution casting technique. Sodium alginate surface functionalizing on the HNTs through hydrogen bonding was confirmed by spectroscopic and morphological analysis. The functionalized HNTs were successfully incorporated into the PVA matrix. Further, the films were characterized by using FTIR, TGA, XRD, SEM, AFM, UTM, WCA and swelling ratio analysis. The obtained results indicated improved physico-thermal properties, and uniform distribution of nanotubes in the matrix and roughness of the surface compared with the pristine PVA films. After inclusion of functionalized nanotubes causes enhancement of tensile strength as well as young's modulus of the nanocomposite films. Water contact angle measurement was carried out to know the hydrophilic or hydrophobic nature of the films and results were correlated with swelling ratio analysis. Furthermore, the films were analyzed for in-vitro biocompatibility studies. In -vitro enzymatic degradation was carried out in PBS media and cellular behaviour studies were analyzed using NIH3T3 cell lines. The results showed enhancement in the enzymatic degradation, proliferation, adhesion activity compared to that of pristine PVA films. In extension, nanocomposite films were subjected to hemocompatibility studies using human erythrocyte. The results revealed that nanocomposite films were biocompatible and hemocompatible. The fabricated films can be used in biomedical application.