The research for the development of antibiotic efficiency against bacteria responsible for common infections is considered of growing worldwide concern. Here, a facile and straight forward method for decorating nickel hydroxide sheets with polypyrrole-silver nanocomposite (Ppy-Ag) was developed by the interfacial polymerization of pyrrole monomer without using any reducing agent. The polypyrrole was used to facilitate the decoration and stabilization of AgNPs on the surface of nickel hydroxide sheets (NH). NH was synthesized using emulsion coprecipitation method. The thermal and morphological properties of the decorated NH have been investigated to confirm the existence of the polypyrrole wrapped layer. Cellulose acetate butyrate (CAB) films were also plasticized with polyvinyl pyrrolidone (PVP) in different mass ratios between PVP and CAB. The results showed that CAB film with 20 wt.% PVP gave the optimal values in terms of mechanical properties. The decorated NH were then added to CAB20 in various mass ratios (3, 6, 9 and 12%) achieving a very good compatibility and forming well dispersed nanocomposites films. The antibacterial activity, water permeability, contact angle and mechanical properties of the developed nanocomposite films were studied. The clear inhibition zone for the new nanocomposite films against S. aureus and E. coli bacteria was recorded as 25.33 ± 1 and 29 ± 1 mm, respectively. Furthermore, the water vapour permeability for the novel CAB nanocomposite films was found 68.83 g/m2/day achieving 29% reduction compared to the blank CAB20 (97.28g/m2/day). Additionally, the mechanical properties were also significantly improved. The different materials were characterized using TGA, FTIR and SEM.