An indigenous and industrially important manganese peroxidase (MnP) was isolated from solid-state bio-processing of wheat bran by white-rot fungal strain Ganoderma lucidum IBL-05 under pre-optimized growth conditions. Crude MnP extract was partially purified (2.34-fold) to apparent homogeneity by ammonium sulphate precipitation and dialysis. The homogeneous enzyme preparation was encapsulated on gelatin matrix using glutaraldehyde as a cross-linking agent. Optimal conditions for highest immobilization (82.5%) were: gelatin 20% (w/v), glutaraldehyde 0.25% (v/v) and 2 h activation time using 0.6 mg/mL of protein concentration. Gelatin-encapsulated MnP presented its maximum activity at pH 6.0 and 60 °C. Thermo-stability was considerably improved after immobilization. The optimally active MnP fraction was tested against MnSO4 as a substrate to calculate kinetic parameters. More than 90% decolorization of Sandal-fix Red C4BLN (Reactive Red 195A) dye was achieved with immobilized MnP in 5 h. It also preserved more than 50% of its original activity after the sixth reusability cycle. The water quality parameters (pH, chemical oxygen demand, total organic carbon) and cytotoxicity (brine shrimp and Daphnia magna) studies revealed the non-toxic nature of the bio-treated dye sample. A lower Km, higher Vmax, greater acidic and thermal-resistant up to 60 °C were the improved catalytic features of immobilized MnP suggesting its suitability for a variety of biotechnological applications.