Understanding the biosynthetic mechanism of gold nanoparticle formation is the key to controlling the size, dispersity, and morphology of the nanoparticles. Reduction of gold (III) to gold (0) in cell-free extracts of Candida parapsilosis ATCC 7330 is not only enzymatic, as confirmed by experiments with heat denatured extracts. In addition to proteins, cellular reducing equivalents also contribute to the formation of gold nanoparticles in a concentration-dependent manner. Characterization of the bio-synthesized gold nanoparticles using X-ray photoelectron spectroscopy and elemental analysis revealed that nanoparticles are stabilized by proteins. The importance of protein three-dimensional structure in producing stable gold nanoparticles is also addressed. Making free thiol groups (–SH) unavailable by derivatizing them in protein extracts resulted in monodisperse gold nanoparticles implying that free –SH increase aggregation and emphasize this as a possible strategy to produce monodisperse gold nanoparticles in biological extracts which is otherwise difficult.